Equity Release and Paying for Care Costs

What are the thresholds for financial help with care costs?

If you own your own house you won’t have to sell this to pay for the cost of your care if either your partner or certain other qualifying dependents still live there. This includes:

• your spouse
• your civil partner
• your unmarried partner
• a close relative over 60 (or incapacitated)
• a close relative under 16 for whom you are legally responsible
• your ex-spouse / partner if they are a single parent

If the house will still be lived in by a qualifying dependent then the value won’t count towards your assets. The same is true if you are getting care in your own home whilst you still live there.

The current thresholds for receiving financial help with care costs are as set out below:

Region	Threshold
England	£14,250 - £23,250
Wales	£24,000 (for care at home) - £50,000 (for residential Care)
Scotland	£18,000 - £28,500
Northern Ireland	£14,250 - £23,250

If your assets are below the threshold you will be entitled to receive the maximum support with care fees from the Local Authority. However, if your assets are above the top threshold then you won’t get any help with care fees. If your assets are between the two figures you will get some help on a sliding scale.

For example, if you live alone in a house worth £200,000 and need to go into care, you won’t get any help with the care fees.

If you live with your wife in England and need to go into a care home, but have savings of £45,000, you won’t get any help with your care fees until the value of your savings has been reduced down to below £23,250.

Why you can’t give away your assets to avoid care costs?

Giving away your assets, such as signing over your house to your children or giving them a cash gift from your savings, will be seen by the Local Authority as a ‘deliberate deprivation of assets’. This means that they will still include the value of those assets when undertaking their means testing. Therefore, you could still find yourself liable to pay for your care even though you no longer have the assets.

Will your partner’s assets be taken into account?

Any shared assets such as joint bank accounts, or another property owned in both names, will be taken account of for means testing. However assets purely in your partner’s name won’t be included.

The impact of equity release on your entitlement to help with care fees

If you are currently receiving care in your own home and have savings below the threshold, you will be eligible for help with your care fees. However, if you release equity from your property which takes your savings above the threshold you will have to start paying for your care. Therefore you need to take this into consideration when deciding whether equity release is right for you.

If you release equity and keep the cash or have a regular income from your equity release policy, this will be counted in your assets and will affect the amount of care funding you will receive.

However, if you took out equity release a long while before either you or your partner needs care then this is less likely to attract attention from the Local Authority when they undertake their means test. But if the equity release was done more recently then the Local Authority are likely to take the full value of your house into consideration. Therefore, it is really important to consider the likelihood of your needing care in the near future when considering if equity release is the right option for you.

Other things to consider with equity release

In addition to thinking about when you might need to access care services, before taking out an equity release policy, you should also consider:

• Will the provider allow you to transfer your plan to another property, if you want to move or downsize?
• Does the plan have an early repayment charge if you want to pay off early to move into a care home or sheltered housing. With penalties of up to 25% of the original loan it’s important to check this out.
• Does the plan allow you to have someone live you with you such as a family member or live-in carer, as some plans will prevent this.

If you live on your own then equity release may be suitable if you want to fund care in your own home, but if you are considering residential care in the foreseeable future then it’s probably not a suitable option, as you will have to repay the loan in full when you go into care.

What is an immediate needs annuity and how can this be used to fund your care?

An Immediate Needs Annuity can provide a regular income to fund your care, in your own home or in a care home. Unlike an regular annuity, if it is paid directly to the care provider it is tax free. It can be paid for from your pension cash, savings or by releasing equity from your home. 

That way you can ring-fence a proportion of your home to leave to your beneficiaries. The benefit of an immediate needs annuity is that it pays out for life, so it won’t run out like your savings could.

Buy to let Equity Release schemes

If you don’t want to sell your home it is now possible to arrange equity release on a property that has been left vacant because you have gone into a care home. If there is little or no mortgage owing it is possible to take out a buy to let equity release scheme. This allows you to

• Keep and rent out the property to bring in an income to help towards your care fees.
• Release some additional capital, potentially to buy an immediate needs annuity.
• Make monthly repayments on the amount borrowed but add the interest to the loan to be repaid when you eventually sell the property.
• Sell the property and release any remaining equity.

It is important to note that a landlord equity release scheme has many similarities to a Lifetime Mortgage but are not defined as a Life Time Mortgage by the FCA. They are therefore not covered by the FCA conduct rules or the Financial Services Compensation Scheme (FSCS). Neither do they meet the standards set by the Equity Release Council as they don’t give you the right to remain in the property for life.

Related: Equity Release and Inheritance Tax Planning