MM Wealth Ltd writes...we must all face the possibility that one day we or a loved one may need additional support and care, either at home or in a care home. Long-term care has never been more important, due to us all living longer.
According to carehome.co.uk, the average cost of nursing home care is £960 per week but may be much higher depending on where you live and your choice of home. For those wanting to stay in their own home, the weekly cost for live-in care ranges between £900 and £2,000.
Arranging care is an emotional and stressful time, and not having the means to be able to afford it can become overwhelming.
Residential and nursing care is not free for everyone and how much you will have to pay will depend on your individual circumstances.
There are two options for funding the cost of long-term care
- You may be eligible for funding from the NHS or your local authority. An assessment is undertaken to determine your care needs and your ability to self-fund. The level of support you will receive will depend on your level of capital, with savings of below £23,250 disregarded in England.
- If you are not eligible for NHS or local authority care home funding, you will need to pay the fees for yourself. This is called self-funding.
Care costs can be self-funded in a number of ways. You can use personal capital, income or a combination of both.
Using your income to fund long-term care
You can pay for your care home fees using income from a number of different sources, including:
- Pension income via income drawdown (drawing an income from your invested pension funds)
- An Annuity
- Non pension based investments i.e. interest and dividends
- Rental property
Using your personal capital to fund long-term care
Another option is to draw on your personal assets. These could include:
- Cash deposits and National Savings
- Shares and other investments
- Property
- Long-term care annuities. These pay out a regular income in exchange for a lump sum. The amount you pay is determined on your health, age and amount of income needed
- Equity release schemes
The order in which assets should be used to fund care will depend on the type of assets held and your individual circumstances. Different types of assets will have differing associated tax considerations, such as income tax, capital gains tax (CGT) and inheritance tax (IHT), and drawing from them in the most tax efficient way can be complex to determine.
For example, certain assets are exempt from IHT, such as pension funds, and therefore generally these assets should be retained for as long as possible if there is the prospect of a future IHT charge on an individual’s estate.
Other assets may fall within the CGT regime and drawing from them could trigger an unnecessary tax liability, which would have otherwise been extinguished on death.
Costly mistakes can easily be made in the absence of professional advice.
A Chartered Financial Planner can work with you to find the best combination of income and assets to pay for your care, while taking into account your tax situation and wider objectives. They can advise you on factors such as:
- How much your care fees may cost
- Whether you will be able to afford to self-fund your care fees in the future
- A strategy for saving so that you are in a position to self-fund care in the future should the need arise
- Establishing the most tax-efficient way to pay for care from your existing asset base
