Boris Johnson announced his “social care cap” back in 2021. It was presented as a watershed moment, providing a clear maximum amount that an individual can expect to pay for later-life care.
With UK life expectancies rising, and the Guardian reporting that around 380,000 Brits currently reside in care homes, the £86,000 cap was big news.
The announcement, though, was quickly branded “misleading”. The Telegraph reported that the cap would fail to “avoid catastrophic loss of assets” and force many to sell their home to meet escalating bills.
The bill has since been postponed but worries about how you’ll fund later-life care may well persist, especially during the current cost of living crisis.
You might consider lowering your assets, through gifting to loved ones, in the hope of becoming eligible for government support. But this would be a mistake.
While “giving while living” is a perfectly legitimate way to leave a legacy as part of your estate planning, strict “deprivation of assets” rules mean that is not a safe way to approach social care costs.
A unique financial plan aligned to your personal circumstances is likely to deliver much better outcomes in the long term.
The controversial social care cap has been delayed under the current Conservative government
One of the main issues with the care cap is that it covers the cost of personal care only. This means there is no cap on the amount you might have to pay in rent or utility bills – a huge expense to self-fund, especially if you believed these costs were capped, and budgeted accordingly.
The original announcement did include an increase to the upper capital limit. It meant that you would remain eligible for local authority support as long as your capital remained below £100,000. The previous limit was £23,250. There was also an increase in the lower capital limit.
Originally due to come into force in October 2023, Rishi Sunak and Jeremy Hunt have since pushed the date of implementation back to 2025.
While the bill might be flawed, its delay will come as a worry to many.
Care home fees are rising thanks to the cost of living crisis with the south-east particularly affected
When – and if – the new legislation is adopted, it will allow for government or local authority support for individuals with capital up to £100,000.
With care home fees rising, additional support before self-funding kicks in could make a huge difference.
In March 2023, This is Money confirmed that the average cost of living in a care home had risen by 11%, to around £46,000 a year. This figure rises to £57,928 in London, while Brighton saw the biggest rise (15%). Some individual care homes have increased their fees by up to 30% as they look to manage soaring food costs and utility bills.
It’s also worth noting that the above figures don’t include nursing costs, which could add a further 20% to your bill.
In this climate of rising costs, some have looked to lower the value of their assets – by gifting money or property – in the hope of bringing their capital below the £100,000 threshold. This is a dangerous tactic with potential long-term consequences.
Trying to “beat the system” might be tempting but you could be left out of pocket
There are very strict rules to prevent you from disposing of assets to intentionally avoid self-funding care (and other thresholds for means-tested benefits).
These are known as “deprivation of assets” rules. If you are deemed to have broken these rules, you might find your care home fees are calculated as though you still owned the assets. This means you’d have bills to pay but no assets to fund them.
The rules can be complicated but essentially, they prohibit you from lowering your assets with the intention of becoming eligible for a benefit, such as help with care costs.
Long-term planning and careful budgeting is key and we can help
It’s important to remember that “giving while living” as part of your tax-efficient estate planning is highly unlikely to break deprivation of asset rules.
We can help you manage your estate tax-efficiently.
We can also help you plan and budget for later-life care costs well in advance. We can do this by:
- Incorporating potential care costs into your retirement plans
- Including contingencies so you know what will happen to your money if care isn’t needed
- Helping you to understand the help you might be legitimately entitled to.
Don’t be tempted to gift assets for any other reason than to leave a tax-efficient legacy as falling foul of deprivation of assets rules could make it impossible to fund the later-life care you need.
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This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.