Your property and the financial assessment
When a local council performs a financial assessment (or 'means test') to determine how much you must contribute towards your care fees, the rules depend heavily on where you receive your care. The means test considers your income, benefits, and capital, such as savings and investments. Critically, the inclusion or exclusion of your property's value is a deciding factor in whether you'll be classified as a 'self-funder' responsible for all your care costs.
Care in your own home
If you require care at home, the value of your main residence is not included in the financial assessment. This means you will not be forced to sell your home to pay for home care services. The council will only consider your other income and capital when calculating your contribution towards costs. However, you will need a care needs assessment to determine if you are eligible for local authority support.
Permanent residential care
If you move into a care home permanently, the value of your former home is generally included in the financial assessment. The capital threshold in England is currently £23,250, so the value of a typical property is likely to push you over this limit, making you responsible for the full cost of your care. This situation often requires individuals to sell their home to meet these substantial costs. This is not the case for a temporary stay in a care home, where the property is disregarded if you plan to return.
Property disregards: When your home is protected
There are important exceptions where the value of your property is disregarded, even if you are moving into permanent residential care. These are designed to protect qualifying dependants from becoming homeless. The value of your home will be ignored in the means test if a qualifying person continues to live there. This includes:
- Your partner or former partner
- A close relative who is either aged 60 or over, or is incapacitated
- A child under 18 for whom you are legally responsible
- A former partner if they are a lone parent
Alternatives to selling your home
Even if your property is included in the financial assessment, selling is not your only option. There are provisions to help you avoid or delay a sale, giving you time to make arrangements.
- The 12-week property disregard: For the first 12 weeks of a permanent care home stay, the value of your home is disregarded from the financial assessment. This can provide an interim period where the local authority helps with fees while other arrangements are made. This disregard ends if the property is sold within this period.
- Deferred Payment Agreement (DPA): If you are not eligible for a property disregard but still own your home, you may qualify for a Deferred Payment Agreement (DPA) under the Care Act 2014. This scheme allows the local council to cover your care home fees, with the debt being secured against your property as a loan. The amount is then repaid either after the property is sold or from your estate after your death. Councils can charge interest and administration fees on this loan.
- Renting out your property: Another option is to rent out your home and use the rental income towards your care fees. This can reduce the amount you need to defer through a DPA or might cover your costs entirely. However, the income would be considered during your financial assessment and could affect your entitlement to certain benefits.
Comparison of options for residential care funding
| Feature | Selling the home | Deferred Payment Agreement (DPA) | Renting out the home | Equity Release |
|---|---|---|---|---|
| Immediate Funds | Provides a lump sum to pay for care fees upfront. | Council pays fees on your behalf, so no immediate payment is needed. | Provides regular rental income to contribute towards fees. | Offers a tax-free lump sum or regular payments based on your property's value. |
| Property Ownership | You lose ownership of the property. | You retain ownership, but the council places a legal charge on it. | You retain ownership and can manage the rental as an income source. | You retain ownership, but the scheme provider has a stake in the property's value. |
| Debt Accrual | No debt accrual related to care fees. | Debt accrues over time with interest and must be repaid from the estate or sale proceeds. | No debt accrual related to care fees, though a small DPA might be needed. | Debt accrues as interest is added to the loan, which is paid back from the sale of the property. |
| Dependant Protection | Does not protect a dependant's residency if no property disregard applies. | Can be used when no dependants qualify for a disregard, securing their future. | Allows dependants or others to continue living there, though with rental obligations. | Does not prevent eventual sale to repay the equity release company. |
| Flexibility | Lowest flexibility; once sold, the proceeds are cash. | High flexibility; delays sale, allowing more time for planning. | Some flexibility; rental income can fluctuate, but provides an ongoing revenue stream. | Can offer flexibility with payment types, but is a long-term commitment. |
| Financial Risk | Market fluctuations can affect sale price. Funds may deplete quickly. | Market value fluctuations and interest charges can increase debt. | Potential for rental voids and management costs. | High-interest rates and compounding debt can significantly reduce the value of the estate. |
Conclusion: Making an informed choice
Deciding how to fund long-term care is a complex process with significant financial implications. While the prospect of needing to sell your home is a major concern for many, it is not an automatic outcome in the UK. A thorough financial assessment by your local authority, combined with understanding the various exceptions, payment options like Deferred Payment Agreements, and alternative strategies such as renting, can provide a clearer path forward. Seeking independent financial advice from a specialist in later-life care is highly recommended to explore all available options tailored to your specific circumstances. Your local council's Adult Social Services are the first point of contact for arranging a needs assessment and discussing the financial implications.
How to get help and advice
- Contact your Local Authority's Adult Social Services: For a free care needs and financial assessment.
- MoneyHelper: Offers free and impartial guidance on paying for care, including Deferred Payment Agreements.
- Age UK: Provides factsheets, guides, and advice via a free helpline on paying for permanent residential care.
- Society of Later Life Advisers (SOLLA): Find an independent financial adviser who specialises in later-life care funding.
Deprivation of assets
One crucial consideration is the deprivation of assets. Local authorities will investigate if they believe you have deliberately given away assets, such as your home, to avoid paying for care. If they find this to be the case, they may still assess you as if you still owned the asset, leaving you liable for the full care costs.
