Could I be forced to sell my home to pay for residential care?
Will I need to sell my home to fund my own caring arrangements?
If you are a homeowner who is growing older, an important question may be on your mind: will I need to sell my home if I have to fund my own caring arrangements? This concern is more evident where your property is intended to be inherited by your children, or is co-owned. Whether this could pose any issues for you very much depends on the circumstances of your ownership; whether you own other properties, whether or not you own your home jointly, and who is in occupation. Below is some general guidance on the process of assessing your financial capacity to fund your own care, when your home will factor into this assessment, and steps you can take to avoid the need to sell your home in such circumstances.
If you require residential care then your local authority (council) will assess your needs and your finances. This “means test” calculates the total values of your capital and income, but your home will be excluded from the calculation where:
- Your caring arrangements mean you will remain living at home
- You only go into a care home on a temporary or part-time basis
- Your partner still lives at home
- Your child is under 18 and in occupation of the property
- A close relative either aged over 60 or incapacitated lives at the home
However, if you do not fall under the above exceptions, your home will form part of your capital for the purposes of the ‘means test’, and if this total exceeds £23,250, you will likely have to pay for your care fees.
What if I own my property jointly?
If the co-owner is in occupation of your home and falls under one of the above categories, the property’s value will not factor into the ‘means test’ at all. Where you jointly own your home with someone else, only your share will be taken into account. Moreover, when valuing your share, the council will consider the fact that any buyer would be co-owning the property with someone else. It is therefore advisable that, where your share in the property is lower than the other co-owner, you buy as or convert to tenants in common. Otherwise, the council may consider your share as equal to the other co-owners’ interest, and accordingly a higher value with be factored into the ‘means test’.
Another option would be for the other co-owner to buy out your share of the property. This would transfer your beneficial interest away from the house, meaning its value would be disregarded for the ‘means test’. However, care must be taken as to how you use the proceeds of sale, as the local authority has the discretion to view dissipated funds as a deprivation of assets, and you may be accused of deliberately avoiding the ‘means test’ threshold. Again, the circumstances of your co-ownership largely define how your property may be valued, so proper legal advice regarding this matter is strongly encouraged.
What if I am the sole owner of my home?
Here, the entire market value of your home will be considered, factoring in any mortgages on the property and the costs of sale. However, the council is prohibited from including this value in the ‘means tests’ for 12 weeks after you move into permanent residential care (known as the ‘disregard period’). It is during this period that you must consider whether to sell your property or opt for an alternative arrangement. Some options are considered below.
Deferred payment agreements
This is a type of loan which can be arranged with your local council, where the council will pay your fees and reclaim the money once your home is sold or after your death. Your council will be obliged to offer this arrangement if your total wealth falls below the £23,250 threshold when disregarding the value of your home. This option gives you the freedom to deal with your property beyond the 12-week disregard period, and it can remain a family home well after your occupation of it. However, the council will usually seek to put a legal charge on your property, and the agreement can involve complex negotiation, which is why seeking sound legal advice before pursuing this avenue is strongly advised.
Immediate care fees plans
For those requiring more immediate means to fund caring arrangements, there is the option of an immediate care fees plan, where you pay an upfront premium in return for regular instalments from an insurer. This can provide the comfort of regular income to support your care plan without the fear of needing the sell your home.
Equity release scheme
Where you have paid off your mortgage already, you may be able to release the equity from your property in order to fund your care plan. There are many forms this may take, including selling part of your home at less than market value in exchange for a lump sum. You can then continue living in your home as a tenant, without having to pay rent. This allows you to continue treating your property as a family home while you are in permanent care. However, this option is less favourable if you hope to pass on your house to children as part of your estate.
The above alternatives to funding your caring arrangements are far from exhaustive, and each involves important costs and risks to take into account. Another key consideration is whether it will be appropriate to appoint a lasting power of attorney so that a loved one may act on your behalf if there comes a time where you lack mental capacity to make decisions regarding your finances. If you are considering present or future options for how your care plan will be funded, contact our property team on 0191 243 8167 to find out more.