Capital and Savings for Residential Care Fees

Introduction

Savings under £14,250 are completely exempt per individual.

Savings between £14,250 and £23,250 are partially taken into account.

Only savings over £23,250 can be fully claimed by the Local Authority.

Definition of Capital and Savings

There is no firm definition of capital.  Generally, capital refers to property, land, National Savings, Premium Bonds, stocks and shares, savings in bank and building society accounts, SAYE schemes, unit trusts, cash and trust funds.

Capital less than £14,250

Where you have capital of £14,250 or less, (as at April 2018) it will be fully disregarded and would not be treated as generating any income.  Capital and any interest from it is that of yours alone.

Capital between £14,250 and £23,250

Where you have capital between £14,250 and £23,250, (as at April 2018) then an income means test will be applied and you will be deemed to have “tariff income”.   You may have to pay the “tariff income” from your capital, which over time will reduce your capital levels.

Capital over £23,250

At present, if you have capital over £23,250, (as at April 2018) then you will pay the full standard fee for your residential care, regardless of income.  Various sources of income will be either fully or partially disregarded in a means test.  For example, personal expenses of £24.90 per week are disregarded.

Prepay Your Funeral

If your cash assets are in excess of either the upper or lower limits, then consider prepaying your funeral to help reduce the value of those assets.

Summary

Organise your savings – So that you have only £14,250 or no more than £23,250.

Have separate bank accounts – If you have joint accounts with your partner try and split the savings into separate accounts (with ideally £14,250, or no more than £23,250, in each name).

Prepay your funeral and pay off all outstanding loans and debts – If you have capital over £14,250 and reduce the capital in your account.

Consider other types of investments – Converting some of your savings over £14,250 into other forms of investments, such as Investment Bonds (see later) that are potentially exempt from residential care fees.

Introduction

Consider funding your potential residential care fees by paying a lump sum in advance into an insurance policy or a Home Income Plan.

General Principle

If you are thinking about formally and properly planning for your potential admission into residential care then you may want to consider funding the care through a suitable investment vehicle.  Specialist advice should be sought from an Independent Financial Adviser (“IFA”) who can provide details on the most appropriate investment options.  The two main types of planning for long term care investment are the following:

Insurance Policy

The types of insurance policies that can be used for residential care fees planning are called “Long Term Care Insurance” or “Immediate Care Fee Payment Plans”.  They can be purchased by instalments or by paying a single lump sum premium.  They are a useful way to purchase cover for future residential care fees should you have to go into residential care.  This can sometimes provide a tax free income higher may normally be achieved from traditional investments or annuities.  With this type of investment, it is possible to cover the costs of residential care for life, while still leaving an inheritance for your family.

Home Income Plans

The second type is cover for future care costs comes from using a “Home Income Plan”.  This involves the payment in advance of a lump sum in return for a charge over your home.  That is then used to purchase an annuity, paying you a fixed income which can be used to pay towards any residential care fees.  If you are on a low income this can be a useful solution.

Summary

Seek advice from a specialist Independent Financial Adviser (“IFA”) – To help and advise you on whether investing a lump sum into an insurance policy or Home Income Plan might be suitable for you.

Introduction

Investment Bonds are often treated as exempt assets by the Local Authority.  Converting some of your assets into Investment Bonds, as part of an overall investment strategy, can be a useful way of protecting some of your assets from being taken into account in any future residential care fees assessment.

Investment Bond

Investing some of your capital assets into Investment Bonds, as part of an overall investment strategy, can be a useful way of ring fencing and protecting some of your capital, while still retaining access to those assets if you ever needed to go into residential care.  This is because Investment Bonds are treated as a life assurance policy rather than a capital investment.

The Technical Position

Schedule 4, Paragraph 13 National Assistance (Assessment of Resources) Regulations 1992 states “The surrender value of any policy of life assurance” is a capital asset, which is normally disregarded under the Local Authority means-test.  Sadly there is no clear legal definition of what is a “policy of life insurance”.  This has led to confusion, particularly in relation to Investment Bonds, which carry an element of life cover.

Deprivation of Assets

Paragraph 6.061 of CRAG states a deprivation of capital may occur if “capital has been used to purchase an Investment Bond with life insurance.  This means that if you deliberately convert some of your capital into Investment Bonds solely to protect them from residential care fees, then it will be treated as a deliberate depreciation of capital.  If however, you convert assets into Investment Bonds as part of a wider general reorganisation of your financial affairs, then it might not be treated as deliberate depreciation of capital.

Be Careful

You need to be careful when investing in Investment Bonds.  It is essential that you seek specialist advice from a solicitor and an Independent Financial Adviser (“IFA”).  Converting some of your capital assets into Investment Bonds is a good way of protecting some of your assets so long as it is part of an overall investment strategy.  Investment Bonds should not be relied upon as an easy way to protect assets at the last moment before entry into residential or nursing care.

Summary

Seek advice from a solicitor and an Independent Financial Adviser (“IFA”) – Who specialises in these matters and is able to properly help and advise you on whether this might be suitable for you.

Re-invest some of your capital assets into specialist Investment Bonds – Investment Bonds are generally not taken into account in any Local Authority assessment.

Introduction

Arrange for a financial health check and re-organisation of your financial circumstances to be carried out by an Independent Financial Adviser (“IFA”).

Why Choose An Independent Financial Adviser (“IFA”)?

Independent Financial Advisers (“IFA’s”) are the only type of financial advisers who are independent and able to select from all the investments available on the marketplace – making sure you get the right product for your individual needs.  Many banks, building societies and other financial institutions are “tied” and can only recommend investments from one particular source.  IFA’s are not tied and can advise you on all the investments that are available.

IFA’s are bound to the Financial Services Authority rules, which oblige them to provide advice most suited to your personal requirements and your risk outlook.

When recommending a particular investment IFA’s provide written reasons why they think it is right for you, making sure that you are fully informed before committing yourself to any decision.

Deliberate Deprivation

If you have invested or reorganised your assets with a view to avoiding paying residential care fees then this will be treated by the local authority as a deliberate disposal or deprivation and will be successfully challenged and the assets reclaimed.

We Can Help

We can recommend an IFA that will help you and who will offer you a free no obligation discussion with no pressure.

Summary:

Find a specialist IFA – We can recommend an IFA who has the right levels of experience and expertise in the matter to help you.