Please note: this article was not written by a financial or legal specialist, and does not cover every circumstance. Please consult a specialist before making any financial or legal decisions. 

You may qualify for full or partial funding towards the cost of a care home from your Local Authority, depending on your location in the UK, income, capital and savings.

However, social care is rarely free and you are likely to need to pay towards at least some of the cost of your care. The more money you can save during your lifetime to specifically put towards the cost of care, the more control you will have over your care choices.

Know who will pay for your care

First of all, it’s important to understand who is likely to pay for your care. You may qualify for full or partial funding towards the cost of a care home from your Local Authority, depending on your location in the UK, income, capital and savings. 

There are also sometimes differences depending on whether you need personal care (for example washing, dressing, getting in and out of bed, meal preparation etc) which is provided by a trained carer, or nursing care, which is provided either by or under the supervision of qualified nurses.

In England, for example, If you have assets exceeding £23,250, you’ll need to finance the accommodation costs on your own, or with the help of family or friends. 

See more about paying for the full cost of a care home place (‘self funding’) and paying the full cost of care provided within your own home.

Know the cost of care

You will want to know how much your care is likely to cost:

Care homes costs 

Care at home costs 

And also to be realistic about how many years you might need to pay these care costs.

The average life expectancy for a man aged 65 is now 84 years, while a woman of the same age could expect to reach her 86th birthday, while many live longer, so bear this in mind when doing your calculations.

It may also be that you go from a residential care home to a nursing home, which costs more.

Saving to pay for care

If you are able to save your own money to pay for care, this is often preferable to having to purchase financial products to cover this cost.

You have the option to use your savings until your total assets fall beneath the threshold for receiving care funding from your local authority. However, remember that your local authority will have limits on the care fees it will pay, and if your care is more expensive than this it may mean topping up or changing to a more affordable care option (which could mean changing care homes). 

Savings account

You might choose to save money towards the cost of your care in a standard savings account or in a higher-interest Individual Savings Account (ISA).

However, be aware that if you end up not needing care then upon your death these savings could be subject to inheritance tax. 

Defined contribution pension

Defined contribution pensions build up a pension pot using your and your employer’s contributions (if applicable).

Using your pension to pay for care and pass on the remainder to loved ones is a tax-efficient solution.

If you die before the age of 75, your beneficiary will not be taxed at all so long as they withdraw the funds within two years. If you die after the age of 75 then withdrawals may be subject to Income Tax but won’t incur Inheritance Tax.

A trust

Another option is to put money into a trust – this is counted as being outside of your estate for the purposes of inheritance tax, so will be protected if you die before you need it to pay for care. 

However, if avoiding care fees is the reason for putting the money in a trust, then this may be seen by the local authority as being a deliberate ‘deprivation of assets’. 

The local authority may decide to calculate your financial liabilities taking the value of the trust into account. This can mean that you are liable to pay more for your care than you can afford.

Before making any decision about putting savings in a trust, it is advisable to contact a care fees adviser.

Consulting a care fees adviser 

Before you need care, it is sensible to meet with a financial adviser who can talk you through your options when it comes to saving for and paying for care. By consulting a care fees adviser you will get impartial and expert advice tailored to your exact financial situation, given by someone who knows the care system inside out. This means you can make the best choice for your specific circumstances.

The care fees adviser will ask your detailed questions about your circumstances and care needs. Using this information, they  will make you aware of all your options when it comes to paying care fees, and also give you advice on how you can proceed, including suitable financial products and services.

More about consulting a care fees adviser.

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