The social care reform – what does it mean for you

The challenge of dealing with social care costs has been batted round by various governments for years. The lack of any cohesive structure has left families across the country at the mercy of spiralling costs with no idea of how long they need to pay or what the final total might be. It’s a situation that’s put families under severe financial strain. The government’s recently announced plan on social care promises to bring some much-needed certainty. But looking at it more closely, it might not be as good as first thought.

Under the current system, anyone with assets of more than £23,250 pays for their own care. These costs vary hugely depending on where you live and the kind of care you need. But it’s been estimated that the average cost of a residential care home in the UK, in 2020 was £34,944 a year. This rose to over £48,720 a year when nursing care was included. 

Funding a year of these costs can put pressure on anyone’s finances. But if the care need is severe or long term, then careful financial planning is needed.

This article isn’t personal advice. If you’re not sure what’s best for you, ask for financial advice.

What are the changes?

The changes first announced in September have been a major shake up to the current system. An £86,000 cap on care costs was brought in, as well as raising the floor from which people qualify for some help from £23,250 to £100,000. While this will help lots of people save enormous amounts on social care bills, there are some important caveats:

So even with this new cap in place, it’s fair to say anyone with a long-term care need will still face significant bills on an ongoing basis.

Social care and gifting

It can be hard to know how to budget for care costs. That’s because you don’t know if you’ll ever need it, and if you do, you don’t know how long you’ll need care for, or what level of care you need. It’s important to be as flexible as possible and not make decisions that could leave you short of cash later.

Gifting to friends and family is one example of this. You might want to give away assets in your lifetime as part of an inheritance tax planning strategy for example. However, you need to make sure that by giving away the asset now, you aren’t putting yourself in a sticky situation in the future.

Once a gift is given, you can’t change your mind and ask for it back. Relationships can also change over time. You might find that a promise to help you financially if you need it in return for a gift isn’t returned when the time comes.

This could leave you struggling to pay bills and potentially having to leave the social care arrangement you’re currently in and move to something that suits you less. It’s important to bear these things in mind when gifting assets.

Deliberate deprivation of assets

Your gifting strategy could also land you in hot water if the local authority thinks you’re using it as a means of deliberately running down your assets to pay less for your care – this is called deliberate deprivation.

When initially assessing your care needs, the local authority will ask about your assets and income – this includes assets you used to own. If you’ve recently disposed of a lot of your wealth to the point it impacts your ability to pay for care, the authority will look at whether this was a significant reason behind your decision to give them away.

If you gave away assets as part of long-established gifting pattern, the authority likely won’t think you’ve deliberately done it to pay less for care.

However, if you had given away sizeable amounts once you knew you needed care – for example, you sold your property to a family member for far less than it was worth – the local authority could question why.

If they think you’ve deliberately run down your assets, then they could assess your financial position as if you still had the assets you’d given away. This means you could risk still paying full price for your care, just with far fewer means at your disposal to pay for it. Again, meaning you could have to cut back on the care you need.

The local authority also has the power to reclaim costs through the courts from the person you transferred the asset to. This obviously isn’t ideal and could cause real distress to both the person in care and their family members. However, these decisions can usually be challenged.

The social care system is still pretty complicated and needs to be navigated with care. While people gift assets to help their wider family, it should be approached carefully because it could lead to a lot of hurt down the line.

Financial advice from HL

Everyone’s goals, circumstances and time frames are different. So these changes will affect everyone in a different way.

It can be tough to know where to start when it comes to planning, but an expert financial adviser can help you put your best foot forward.

We have advisers across the country who can go into more detail about saving and investing for your future.

Our advisory helpdesk are the gateway to getting financial advice from HL. They don’t give advice themselves, but they’ll help you make sure advice is right for you and you’re comfortable with the charges involved. If you’re happy to proceed, they’ll put you in touch with an adviser within two working days.

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