Paying For Care Yourself: Alternative Funding Options
Let’s be realistic. Most people end up paying for one-to-one live-in care from their own pockets because they just don’t qualify for Local Authority funding, or they must meet part of the costs themselves.
If this happens to you or your loved one, you’ll want to know what alternative funding options are available in order to pay for the care you need.
People moving into nursing or residential homes always have the option of selling their house to raise funds (though they may not want to). If you opt for live-in care at home, however, that’s not an alternative available to you, though downsizing may be. (Just remember you’ll still have to provide an additional bedroom for your carer).
You could also draw money from your savings or shares, or sell collectibles, arts or antiques, but if you need alternative strategies, consider the below:
Using Investments as Income
It’s unlikely that you will be able to pay for any long-term live-in care via your pension or income alone, but it’s always worth investigating. As a good first step, consider whether any of your assets could be arranged to provide a steady income that could go towards your care.
Be aware that you may be somewhat limited when choosing live-in care versus residential, for instance, in that you cannot use your house as an asset in the same manner.
For example, if you live alone and wanted residential care, you could rent out your home to generate a monthly income. Alternatively, you could sell the house and put the money into shares, ISAs, investment bonds, government bonds or more which should pay out regular returns that would allow you to pay for care. These may still be options for you if you have a second home.
Pluses: If it’s possible to do the above, you may be able to keep your capital and pay for care using the return it generates, allowing you to pass on a lump sum to your children.
Minuses: It is hard to predict the returns from investments and you will also need to pay income tax on most investment pay-outs. There’s also a real risk that your capital will not be sufficient enough to fund your care over the longer-term.
Equity release allows you to free up some of the value of your home to pay for care whilst you continue living there. You can gain the money as regular payments or as a large single payment, and can use it to pay your care bills or to buy a care plan (more on that below).
There are two types of equity release available: Lifetime Mortgages or Home Reversion.
Lifetime Mortgage: This type of equity release is essentially a loan against your property but you don’t have to make any monthly re-payments. Instead the interest accrued will build up over time and will be paid off along with the lump sum you borrowed upon the sale of the estate. Note that if you borrow from a provider belonging to the Equity Release Council, you should never owe more than the value of your home.
Home Reversion: This is mostly available to those UK homeowners over 65 years of age and is where you sell some or all of your property to a provider in return for a tax-free lump sum and a rent-free lifetime lease. This means they guarantee you the right to live in your home until death or until you move into a care home.
Which to Choose: You should seek specialist advice if you are considering an equity release on your property as both types will reduce the value of your estate, and could affect your entitlement to state benefits. Practically speaking, however, Lifetime Mortgages are the most popular choice by far. They offer most of the same benefits as Home Reversion Equity Release without having to sell your home, meaning the home still belongs to you at the end of the day.
Pluses: Equity release can give you the lump sum or income you need to cover care fees with no repayments needed, allowing you and/or your spouse to remain in the property for life.
Minuses: You will not be able to release or pass on the full value of your house to your beneficiaries. Unless you use the money to buy a long-term care plan, it could run out.
If you plan to opt for live-in care as opposed to residential, you won’t have the option of selling your home and using the profits to pay for your care unless you plan to move in with relatives or friends.
Downsizing – selling your existing home to buy a smaller less expensive one – could still be an option, however. You may also be able to buy a more suitable house for your current health needs.
Points to consider: Downsizing your home may not bring in as much money as an equity release scheme, but could be more cost-effective. A Home Reversion plan, for instance, will only ever offer a portion of the market value of your house. If you sell it yourself, you can sell on the open market.
Pluses: After downsizing, you will know the exact amount of money you have available to fund your care and are in control.
Minuses: You leave a smaller estate for your beneficiaries.
Tip: You will need to carefully work out how much money you will gain from downsizing. Be honest about your house’s potential value (use an online property valuation guide such as Zoopla), and don’t forget ‘hidden’ costs such as Stamp Duty, legal and estate agency fees.
One of the big unknowns in care funding is how long you will need it for. How long will you live? No one knows. What you don’t want to do, therefore, is to organise funding for the next 10 years only to discover you need it for 20 or more.
A Long Term Care Annuity may be the answer. It’s an insurance policy which provides a lifelong income, ensuring you have money for care for as long as you need it.
How It Works: You agree with the insurance company to give them a lump sum and in return they will give you a monthly payment for the rest of your life. If this payment is made directly to your care provider, it becomes tax free. The monthly amount can be fixed, or can increase each year to cover increasing care costs.
There are two types of care annuity available depending on when you will need the income: Immediate Funding for anyone needing income now, and Deferred Funding for people planning ahead for the future.
The price of a care plan is based on how much money you need and how long you’re likely to need it for (to be assessed by the insurance company). The amount you will need to pay up front will depend on your age, life expectancy, current rates of annuity, level of income needed and the state of your health. As a general rule, the poorer your health, the cheaper the plan will be; ditto, the shorter your life expectancy.
Pluses: You are guaranteed an income for life to help pay for your care fees and it is tax-free if paid directly to your care provider. The cost is also deductible for Inheritance Tax.
Minuses: Before you can begin receiving your income for life, you must pay in a significant lump sum. If you die early into the plan, your estate will receive less than this, though you can choose a capital protection option when you purchase. If you may only need care temporarily, this is not a good option for you. Likewise, once you’ve taken out the plan, there is no going back or cancelling the plan if you change your mind.
For more on all of these funding options, you can visit the following for independent advice:
Paying For Care – Care Funding Options: http://www.payingforcare.org/care-funding-options
Money Advice Service – Self-Funding Your Long-Term Care https://www.moneyadviceservice.org.uk/en/articles/self-funding-your-long-term-care-your-options
Age UK – Paying For Care and Support At Home