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Self-funding a care home

We explain how to cover the costs of a care home if you're a self-funder, what happens if your money runs out and where to get financial advice.

In this article
Will I have to pay for my own care? Will I have to sell my house to pay for care? Using private income, savings and pensions to pay for a care home Renting out a property Take advantage of state benefits NHS funding
Consider a deferred payment agreement Immediate needs annuities Investment bonds for long-term care Does it pay to give away your home or wealth? Seek financial advice What happens if I run out of money?

Will I have to pay for my own care?

Unlike healthcare, social care is rarely free. Most people who need residential care in later life will have to pay some or all of the costs themselves. 

Local-authority funding may be available, but this is means-tested. In England, for example, if you have savings of more than £23,250 or you own your own home, you will usually not be entitled to state funding to pay for a care home.

For more information about the thresholds for care funding across the UK, see our article on local authority care funding.

Will I have to sell my house to pay for care?

Care home fees across the UK are almost £35,000 a year on average – but they can be far higher depending on where you live and the type of care you need. So it’s no surprise that many people are concerned about how they would pay the fees if they had to move into a care home. 

If you own your own home, you may think that selling it will be the only option to ensure you can meet care costs in later life.

In some cases, selling the home may be the best solution. It has the potential to release enough capital to cover care home fees, and it may feel like the most straightforward option if nobody else is living in the home.

If you do sell your home, you may be able to invest some of the capital raised to ensure the funds last longer.

But if you don’t wish to sell your home or you’re not a homeowner, there are other ways to self-fund a care home. We describe the main options below.

Paying for care in your own home: an important difference

If you need professional care in your own home, the value of your home is not included in the means test for local-authority support. 

If you've been assessed as needing care at home, a local-authority financial assessment will consider your savings and income, but not the value of your home.

For advice on self-funding care in your own home, see Paying for care at home.

Using private income, savings and pensions to pay for a care home

Most of us are unlikely to have enough income to cover expensive care home fees. But if you have savings, investments or property, the combined income from these assets – alongside any pensions or state benefits you receive – may meet a significant portion of you care home bill.

Remember, you may not be permanently self-funding. Once your assets drop below a certain level, you may then qualify for state funding. See ‘What happens if I run out of money?’ below for more information.

Renting out a property

If you own your own home and you don’t want to sell it, you might consider letting it to earn extra income. It can be a good way to boost your income and reduce the need to rely on savings.

Don’t assume that rental income will always be consistent, though. You’ll need to have a contingency plan for any periods when the property isn’t let out. You should also allow for some ongoing costs to cover repairs, decorating and insurance fees.

Money earned from renting out a property is taxable, depending on your overall income. So you may need to put some money aside to cover your tax bill. 

Read more advice about how to rent out your home.

Take advantage of state benefits

Make sure you claim all the benefits you’re entitled to, as these can help to boost your income.

  • Attendance Allowance is available to people over state pension age who need help with personal care at home or in a care home, as long as they meet the eligibility criteria. It's assessed on the level of care you need and is not means-tested.
  • State pension payments will continue at the same level if you move into a care home .
  • Other disability benefits, such as Personal Independence Payment (PIP), will also continue to be paid in full if you're self-funding a care home.
  • Pension Credit: depending on your financial circumstances, you could receive this top-up to your income.

Read more about the benefits and allowances available for older people.

NHS funding

If you have ongoing, complex healthcare needs, you could be eligible for NHS Continuing Healthcare. This is a scheme that covers the full cost of residential care for people who have eligible needs. The criteria are complex, but it’s well worth applying if you think you might be eligible.

If you don’t qualify for Continuing Healthcare, but you need regular nursing care in a care home or nursing home, you might be eligible for NHS-funded Nursing Care. This is a contribution towards the cost of your nursing needs. It’s paid directly to the care home, and the amount should be deducted from your bill.

Consider a deferred payment agreement

If you own your own home but don’t have enough money to pay care home fees, you can request a deferred payment agreement from your local authority.

This is effectively a long-term loan to meet care home costs, secured against your property. The council pays your care home fees and you don’t have to repay it until you choose to sell your home later on, or after you die.

This can be a useful option to fund residential care if you don’t wish to sell your home, or if you’re finding it difficult to do so. Read more in our article on deferred payment agreements.

Immediate needs annuities

An immediate needs annuity is a type of insurance policy that provides a regular income in exchange for an upfront lump sum investment, rather like a standard retirement annuity. It’s sometimes called an ‘immediate needs care plan’. 

Setting up this type of annuity means paying out a large sum of money upfront. But it can offer peace of mind from knowing that you won’t run out of money.

If considering this option, be sure to take advice from a qualified financial adviser. Here are some important things to be aware of:

  • The income is tax-free as long as the funds are paid directly to a care home. 
  • Be aware that care home fees may rise faster than the annuity payments. To overcome this, some providers will allow you to pay extra up-front to ensure that the annuity payments increase over time to keep up with any price rises.
  • Insurers base their pricing on how long they expect someone moving into care to live for. So there is a risk of ‘wasted’ premiums if you were to die earlier than expected. Of course, you may feel that the peace of mind it provides makes this a price worth paying.
  • For an extra cost, you can insure against premature death by buying a guarantee that will return a proportion of the unused funds to your family if you die early. But the cost can be prohibitive.

Investment bonds for long-term care

Some insurance companies offer products labelled as investment bonds for long-term care. Essentially, this is a long-term investment vehicle that contains a life-insurance element.

You can take some of the income generated tax-free, and you could use it as a way to fund care, although it would be unlikely to cover all care costs. You can also potentially leave behind a lump sum to your children.

In order for an investment bond to be useful for funding care, you would need to start investing at least 10 years before you need to pay for care.

It is possible that an investment bond could be excluded from a financial assessment for social care, because of the life insurance element. However, the rules on this are complex and it will be at the discretion of the local authority. If you put money into an investment bond when you already know that you will need care, the local authority may consider this to be a deliberate deprivation of assets.

The Money and Pensions Service has more information about using investment bonds to pay for long-term care.

Does it pay to give away your home or wealth?

You might be tempted to give away some of your savings or property to help you qualify for local-authority care funding. However, there are strict rules about giving away money or property in this way. If it’s not done in the right way, assets that you give away could still be taken into account for a social care means test.

Read more about the rules in our guide to giving away your property or assets.

Seek financial advice

Financing long-term residential care often involves complex financial decisions. It’s always a good idea to seek professional advice.

Discuss your options with a specialist independent financial adviser (IFA) who holds a CF8 qualification – this allows IFAs to advise on long-term care products. The Society of Later Life Advisers (SOLLA) can help you find an accredited adviser near you.

Money guidance for Which? members

Which? members can call our Which? Money Helpline for guidance on any of the money matters covered in this article, as well as a range of other money issues. It’s part of our Which? memberships, so members can get guidance at no extra cost.

What happens if I run out of money?

Once your savings and assets fall below the threshold for state funding, the local authority has a duty to contribute to the cost of your care.

Thresholds for local authority funding – residential care, 2021-22
  Full support Partial support Self-funder
  less than: between: more than:
England       £14,250

£14,250 - £23,250

£23,250

N. Ireland      

£14,250

£14,250 - £23,250

£23,250

Scotland      

£18,000

£18,000 - £28,500

£28,500

Wales      

£50,000

n/a

£50,000

Contact your local authority if your assets fall below this level. It will carry out a reassessment of your needs together with a financial assessment to decide how much support you’re eligible to receive.

For more information about how the thresholds are applied in each part of the UK, see our local authority funding page.

Local authorities usually have a standard rate they’re prepared to pay for a care home. If your current care home charges more than this rate and the council thinks your needs could be met in a less expensive home, it may recommend a move. However, before forcing you to move, the council should assess whether such a move would affect your physical or mental wellbeing.

If there’s a shortfall between the amount the local authority is willing to contribute and the cost of your current care home, you may be able to arrange a care home top-up fee to enable you to stay in the same care home. This would require a family member or friend to help with the costs.

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