The idea of selling your house to pay for care is something many people resent, so it’s tempting to look at ways to safeguard your property, which might include giving it to your children.
However, there are strict rules surrounding what you can and can’t do with regard to your property and funding long-term care, so it’s important to get to grips with these before you make any decisions. Here’s what you need to know.
When do I have to pay for long term care?
Currently, anyone in England with assets over £23,250, including their property, must pay for their care in full. However, this is changing next year, so that if your assets are less than £20,000, from October 2023, you won’t have to make any contribution toward care costs from your savings or the value of your home. Anyone with assets of between £20,000 and £100,000 will be eligible for some means-tested support.
A new cap will be introduced next October too, so that the maximum you’ll have to pay for personal care if you’re starting adult social care is £86,000 over your lifetime. Find out more about these changes in our news article What changes to social care mean for you.
The information shown here relates to rules as they stand at the moment.
Selling or giving your home away
The rules about how someone’s capital and savings (including their home) may be assessed if they need care are complicated and are set out in more detail in our article How to pay for long-term care.
In basic terms, your home WON’T be taken into account if:
- You need care in your own home, in which case its value isn’t counted. Find out more in our guide Live-in care – what is it and what are the benefits?
- You move into residential care but your husband/wife/civil partner or partner continues living in your home. There are other exceptions as well, such as if you share your home with someone who is aged over 60 or below 16, or if you live with someone of any age who is disabled.
- The NHS pays for your care. The NHS will only fund your care if you need ‘continuing health care’ rather than social care. If you need to go into a residential home, you wouldn’t qualify for NHS funding, but if you need to go into a nursing home, you might.
- You have just moved into care. The value of your property should be ignored for the first 12 weeks that you need care in a nursing home. You’re only entitled to the so-called ’12-week disregard’ if you go into care after you’ve had a ‘needs assessment’. If you end up going into care because you or your family think you can no longer cope (but you’ve not been officially assessed via social services) you don’t qualify.
Can I give my house away?
You might think the easiest way to avoid having to use your home to fund care costs is to hand over your property over to your children, or to sell it and give them the proceeds, but it’s not that simple.
If you need care, one of the first questions the local authority will ask is ‘do you own your own home?’ If you answer ‘no’ it will then want to know whether you ever owned your own home.
If you previously owned your own home but have since sold it, the local authority will ask a series of questions to try and establish if you sold your house knowing you needed care (this is known as ‘deliberate deprivation’) or if you sold your house when you had no idea you might need care.
If the house or proceeds of the sale of the house was given away six months or less before you needed care, it will usually be seen as a clear case of deliberate deprivation and the local authority would use the NHS and Community Care Act 1990 to reverse the transfer.
If the property was sold or given away more than six months before you needed care, the local authority cannot use this act, but has to use insolvency laws to investigate what happened instead.
How the local authority will investigate
What the local authority will try and establish when it investigates cases where parents have given away their home to their children or sold them and then given away the proceeds, is the motivation behind it.
It’s worth bearing in mind that local authorities are becoming increasingly vigilant in following up cases where houses have been sold or transferred. Although the onus is on them to do the investigating, if you previously owned your own property, they will almost certainly ask follow-up questions and investigate further if necessary.
Some people mistakenly think that local authorities can only go back for a few years but, under insolvency laws, there’s no limit on how far back they can go.
Local authorities can request the notes of financial advisors or solicitors who you’ve had meetings with to arrange the sale or transfer of the property. They can – and do – examine these notes to establish the motivation for giving away or selling the house.
The main reason why a transfer might be ignored is if someone wanted to downsize or give assets away to reduce their potential inheritance tax bill, but that’s by no means foolproof. If your assets and property are worth more than the inheritance tax threshold it’s likely you’ll have other assets which would take you above the local authority limits for a contribution towards your care.
If you’ve given money away and it’s been spent, the local authority will simply refuse to contribute towards the funding of a care home until the ‘notional capital’ – namely the value of the money that was given away/transferred – has been used up.
Things to think about
It is definitely possible to give away your house or to sell it and give away the proceeds, but you must be aware of the potential consequences.
- You may be no better off, depending on the timing and your motivation for doing so
- You will restrict your choice of care homes, and local authority funded care may not be appropriate for you
- There may be unintended consequences. If, for example, you give your home to your grown up children, the house could become part of a divorce settlement or bankruptcy petition if their marriage breaks down or they are declared bankrupt.
Ways to pay for care without selling your home
If you need care and don’t want to sell your home, there may be other options available to help you cover costs.
Renting out your property
It may be possible to rent out your home to provide you with an income which will cover care costs. However, if you plan to do this, you must be prepared for the fact that there may be ‘void’ periods when you might not be able to find tenants and therefore there’s no rent coming in. There will also be maintenance costs to cover, as well as letting agent property management fees. Find out more about what’s involved in renting out a property in our guide What are my responsibilities as a landlord?
Equity release allows you to unlock some of the wealth that may be tied up in your property, without having to sell it. Cash can be extracted in a single lump sum or in smaller amounts over time through what’s known as drawdown.
Unlike a conventional mortgage, with equity release there are usually no monthly repayments to make – instead, interest rolls up and the loan plus interest is repaid when the property is eventually sold. Equity release is not without risk however, and it could affect your or their entitlement to means-tested benefits, as well as reducing any inheritance you might have planned to leave. If you would like to find out more, you can find out more about equity release in our guide Equity release: what is it and how does it work?
If you want to see how much you might be able to release from your home and how much it could cost, this equity release calculator** can give you an estimate. Fill in a few details to get an estimate.
Taking money out of your home through equity release is a big financial decision so it is important to seek professional advice if you’re considering taking this route to cover long-term care costs.
If you’re ready to speak to someone, it’s essential to use an advisor who is trained in equity release and who can recommend a suitable product from a member of the Equity Release Council (ERC) to ensure that a number of minimum product standards are met to help safeguard borrowers.
If you’re looking for somewhere to start, you can get fee-free expert advice** from a Rest Less Mortgages equity release specialist, with no broker fees on application. They are active members of the ERC and can advise on equity release mortgages from the whole of the market. They’ll listen to your needs and talk you through your options, so you can decide if equity release is the right option for you.
Using a pension to pay for care costs
If you have built up, or are hoping to build up, significant retirement savings over time, you may decide to put some or all of the income from your pension towards your long term care costs. The local council will treat any pensions as assets and factor them in when working out what you or can afford to pay towards care.
If you want personal recommendations about where to invest your retirement savings, you’ll need to seek professional financial advice. You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guides on How to find the right financial advisor for you or How to get advice on your pension.
If you’re considering getting financial advice and are looking for somewhere to start, Rest Less Pensions are offering a free Pension Health Check† with one of their experts. They can offer you information and guidance on the call and at the end will discuss whether you would benefit from paying for professional financial advice. Capital at risk.
Have you had to sell a property to cover long term care costs, or have you made provision so you don’t have to do this? We’d love to hear from you. You can get in touch via the Rest Less Community forum, or post a comment below.