It is important to undertake some planning for care home fees. Care is very expensive and a far greater threat to your wealth preservation than Inheritance Tax.
The average cost of care is now over £41,000 a year. This is generally increasing faster than inflation and we are living longer. Both of these facts will contribute towards an increase in the overall cost of care.
Paying for your care why planning for care home fees is important:
If you have capital over £23,250 (the upper capital limit in England), you will be a self-funder and you will pay for your own care. If your capital is below this figure, but above £14,250, you will contribute a means tested amount. Currently, your home will be disregarded if your spouse continues to live in it. In this case the local authority (LA) will pay for your care.
The Care Act 2014 intended to introduce a new upper capital limit of £118,000 and a lower capital limit of £17,000 from April 2020. For those with capital between these amounts, you would still contribute a means tested amount.
A cap on the cost of care at £72,000 is also proposed from 2020, for those who are state pension age and above. However, this cap relates only to the cost of care. The cost of accommodation and food do not count. The cap will only take into account the cost the LA would pay for care. This may be significantly different to the actual cost!
When faced with costs of £41,000 per year or more and the prospect of selling your home, many consider how they may give assets away. Where the remaining assets fall within the capital limits, some help in the cost of care is obtained. You may, therefore, want to give some assets away in your lifetime to save on Inheritance Tax. This may not be as straightforward as first thought.
The LA has the power to investigate your previously owned assets and transfers when they carry out a means test. Transfers and gifts made shortly before a means test are at real risk of the LA arguing that this was done only to avoid having to pay fees. Even those transfers made years ago may be challenged. Although in this case, the LA would need to prove that “deliberate deprivation” had taken place.
Deliberate Deprivation (DD)
Where you deliberately reduce the value of your assets with the intention of reducing the amount you pay for care this may be evidenced as DD. This may include giving assets away, selling assets and spending the proceeds or selling for less than they are worth.
The LA has to be able to show that you needed care or support and that reduction or avoidance of care costs was a significant factor in your decision to reduce your assets. If successful the LA will include the value of these assets on a national basis. Powers of recovery are wide and can include children being pursued to repay money gifted to them.
The best way to plan for care home fees is to consider early. Where you have an estate that will be liable to Inheritance Tax, start planning to mitigate against this whilst you are fit, healthy and with no expectation of needing care imminently. This should not be argued by the LA as DD.
Use annual exemptions regularly and establish a regular pattern of gifting earlier; this can then be argued as a habitual practice and not one that has been started with the sole intention of reducing your assets.
Consider the investment vehicles available; it is always appropriate to consider the different investment wrappers available and how they interact to provide future tax efficiencies. Ensure that you have reviewed your Will and consider the ways you can own your home.