2020 Budget: family homes still at risk from care fees

There was nothing in yesterday’s budget to tackle the growing social care crisis, but even if the Tories meet their promise to ‘tackle the big issues head on’ in the coming months, it won’t be what people are expecting. Couples should not delay in protecting what they have but need to do this the right way – and the fair way.

No-one will have to sell their house to pay for social care under Tories, said Boris Johnson in the run up to December’s general election. The Prime Minister promised a £5 billion cash injection to ease the current funding crisis and pledged to “end the injustice” of people having to sell their family home by seeking a cross-party agreement on how to pay for the soaring costs of caring for the elderly and disabled. So what did yesterday’s budget have to say about care? Very little.

“Over the next few months we’ll tackle the big issues head on. From our National Infrastructure Strategy, to social care and further devolution.”

A vague reference to tackling the problem with nothing concrete proposed. In fact, the focus was fairly and squarely on coronavirus COVID19.

“This is the Budget of a Government that gets things done.” said Chancellor Rishi Sunak. But it’s hard to have faith, given the Government’s track record on this issue.

What past care funding proposals have been made?

A cap of £72,000 on care fees was first proposed in 2011 following the recommendations of the Dilnot commission in a bid to stop families facing unlimited bills. The Government under David Cameron pledged that this would be introduced by 2020.

Theresa May later proposed a new threshold on the run up to the 2017 election that would see people funding their own care if they had assets over £100,000. This was later dropped from the manifesto. In December following the election, Ministers announced that the £72,000 cap had also been scrapped.

This leads us to Boris Johnson’s promise of “ending the injustice” of people having to sell their family home. But this promise could be deceiving – it is not a pledge to preserve the value of the home.

How is the problem escalating?

A growing and aging population means there is a rising demand for care and increasingly complex needs. Age UK predict that if trends keep pace with demographic pressures, the number of older people in receipt of publicly funded home care services or direct payments will reach 466,000 in 2040 (an increase of 87 per cent from 2015). Likewise, the number of publicly funded care home residents aged over 65 is predicted to reach 280,000 by 2040 (an increase of 67 per cent from 2015).

Past reductions in government funding and an increase in unit costs have put Local Authorities under extreme pressure. Net public expenditure on social care for older people (excluding service user charges) is projected to rise by 159 per cent to £18.7 billion under the current funding system (from 2015 – 2040), and 189 per cent may in fact be a more realistic figure if you factor in the likelihood that costs and wages in the sector are likely to rise a little faster than other sectors. Nobody would disagree that the care system is at breaking point already, without factoring in the growing, aging population and increasingly complex needs.

How much does care cost?

The costs depend on what type of care you need and where you live.

The NHS for example estimate:

  • £600 a week in a residential home
  • £840 a week in a nursing home
  • £1,600 a week live in carer

Self-funders pay substantially more for the same rooms and services than those who obtain CHC funding. A report by Age UK revealed that those funding the cost of their own care pay £200+ more per week than the Local Authority would pay for the same room. In fact, the Competition Regulator estimated in 2016 that the difference could be as much as 41%. The extra fees are being used to pay for residents who are unable to pay for themselves and are dependent on Local Authority funding.

How are care costs funded at the moment?

There is funding available under the NHS Continuing Healthcare Funding (CHC) scheme if you suffer from a disability or a complex medical problem and in theory, this should not be means-tested. The CHC scheme is available in England, Wales and Northern Ireland. In Scotland, an alternative scheme exists, called Hospital Based Complex Clinical Care. This scheme is only available to people in hospital.

However, many people who could claim are unaware of it because underfunded Local Authorities tend skip straight to a means test. Further, even if you qualify in theory, the Local Authority budgets are stretched and funding is extremely limited. Many referrals are unsuccessful and in some cases there are delays of more than 6 months in making an assessment.

You can find out more about CHC here.

Assuming you have care needs and don’t qualify for funding, the Local Authority will perform a means test to see whether you have assets which could be used to pay for your care. If you and your partner both live at home, your property is ignored for the purpose of this test. It may also be ignored if certain other people occupy the home (such as elderly relatives).

If you have assets of more than £23,250, you must pay for the full cost of your care.

If your assets are between £14,250 and £23,250, the NHS will pay a contribution. When your assets reach the £14,250 threshold, the NHS will take over funding, although frequently you or your family will still have to pay contributions. This might be for extras or to secure a place in the home you want.

Where a couple leave everything to each other and the survivor needs care, the result of the above is that almost every penny can be spent on care fees, leaving nothing for the children or grandchildren.

Are the Tories likely to tackle this in the coming months?

boris johnson

Even if the Tories meet their promise to ‘tackle the big issues head on’ in the coming months, it won’t be what people are expecting.

The Chancellor has promised to tackle this issue ‘head on’ in the coming months. If they do, what are we likely to see? A solution is likely to be:

  • Either an ‘absolute limit’ to the amount you will spend on care; or
  • A rise in the £14,250 threshold for paying for your own care; and/or
  • A pledge that the family home would never need to be sold in a person’s lifetime.

If they go down the route of an absolute limit, keep in mind that under Theresa May, the Government concluded £72,000 to be unsustainable. The absolute limit is therefore likely to be a lot higher, leaving little to pass on to loved ones.

If they go down the route of a rise in the threshold, remember that the pledge to increase to £100,000 was dropped from the Manifesto in 2017, which suggests it is unrealistic. Even if it were introduced at this level, this can still leave a large portion of the estate exposed (see below).

The pledge that the person’s home does not need to be sold during their lifetime does not preserve the entire value of the family home – this simply wouldn’t be sustainable. Instead, it means that any costs incurred would be recouped after death (essentially, like a mortgage that gets repaid once the person dies). This is called a Deferred Payment Agreement and such arrangements have been around for many years. Awareness of DPAs remains low and there is concern amongst local authorities about how to meet the immediate financial burden of funding them should they increase, together with tackling the long-term risk of not being able to recoup the financial outlay.

How can the wrong Will make the problem worse?

Currently, if you die leaving everything to your partner and your partner needs care, the Local Authority will perform a means test on your partner to see if they can afford to pay for care.

When performing a means test, the Local Authority can take all of the assets into account – including your share which you left to your partner.

This type of Will is called a Mirror Will and it is surprisingly common. It puts practically the whole value of your estate at risk from care fees. Other risks of such Wills include your partner getting into financial difficulty after your death, or remarrying which can see the estate pass sideways out of the family.

Should I give my home away?

You shouldn’t gift property to someone with the intention of avoiding care fees. If you do, the Local Authority may treat it as if you intentionally deprived yourself of assets that could be used to pay for care fees. They could treat the asset you gave away as ‘notional capital’ – i.e. they will perform a means test as if you still own the property. Your remaining assets may be used up entirely to pay for care (because you are deemed to still own the asset, even though you gave it away). They have wide powers and can also look to the recipient of the gift to pay for your care fees.  See our article ‘Deprivation of Assets – a guide’ for a more in depth consideration of the action that a Local Authority might take.

Should I put my home into trust?

You shouldn’t transfer your property into a so-called ‘Asset Protection Trust’, ‘Family Protection Trust’ or ‘Estate Preservation Trust’ with the intention of avoiding care fees. There are quite a number of risks with this type of transaction, even if the companies peddling the concept tell you otherwise. These include that they are often run by non-lawyers with no real legal qualifications. In the past, some have been jailed for fraud. Transferring your property into one of these type of trusts may be regarded as deprivation of assets and once you transfer the property into the trust, you cannot get it back again. Find out more about Asset Protection Trusts here.

So what’s the solution?

There is a surprisingly simple solution to the above which allows couples to protect quite a large portion of their estate from care fees. First, you need to ensure that your home is held as ‘Tenants in Common’ rather than Joint Tenants (if you’re not sure of the difference, click here). If only one of you owns the property, you may wish to consider a Transfer of Equity.

You then both write Wills which in effect, give each other a life interest in your own share of the family home upon your death. Once the survivor dies, the property can either pass directly to your choice of beneficiaries (e.g. children, grandchildren) or into further trusts.

Whilst you are both alive, if one of you needs care remember that the family home is discounted for the purpose of a means test. If one of you dies and the survivor needs care, the first-to-die’s share is protected – it cannot be taken into consideration for a means test. The survivor’s own share is still available to pay for their care.

Other assets besides property can be included in the life interest, such as investments. You can therefore preserve up to 50% of your joint estate, plus £14,250 (the current care threshold for the survivor) this way.

This solution is not a ‘deprivation of assets’ because the person needing the care pays for it. It is fair because the person who didn’t need care does not end up paying for the survivor’s care and consequently having nothing to pass on.

But if the Government increases the threshold to £100,000, I won’t need this, will I?

If the Government approaches the social care issue by raising the threshold to, say, £100,000, consider how this plays out if your home is worth £200,000 and you die leaving everything to your partner .

  • Without the above solution, your partner (having inherited your share) would have to pay up to £100,000 towards the cost of their care.
  • With this solution, your partner would have to pay for £0 towards the cost of their care.

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