Protecting Your Home From Care Fee Attack!

In June 12, 2015
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Here at Redwood, we offer advice upon and the implementation of the Home Protection Plan, the purpose of which is to protect your main residence from Care Fees in the future, should you ever be in the position that you require Care.

We use a company who specialises in Home Protection Plans to prepare the Trust Documentation for our Clients and we recently attended a Seminar provided by them. The focus of this Seminar was to provide a general overview of the Plan and its key features and to highlight the changes which will come into effect in 2016. We have provided a summary of some of the topics discussed at this Seminar below for your information:

Impact of Care Fees on your Home

If you have to go into Care at some point in the future and you own your home and have income or capital that puts you over the upper threshold, the Local Authority can put a unilateral charge on your home to cover the costs of your Care.

The idea of the Home Protection Plan is to transfer the family home into a Trust which is managed by the Trustees who, in most cases, would be your children or another family member. Then, as the house no longer forms part of your Estate, should you require care in the future, the Local Authority is unlikely to be able to fund your Care from the equity in your home.

As part of the Plan, your continued occupation for the rest of your life is secured so you can still enjoy living at home whilst protecting your home from Care Fees. In addition, if you would like to move home, for example, to downsize, you are entitled to direct the Trustees to sell the property and direct them which alternative property is to be bought.

Changes Afoot

When assessing your ability to pay for your Care Fees, the Local Authority will not only do so on the basis of your income, but also on the basis of your capital, which in a lot of cases mainly comprises of the value of the family home.

Currently, the capital threshold is £23,250 which means that should your capital be valued in excess of this amount, you will be required to pay for your Care Fees in full. The lower limit is £14,250 so if your capital is worth less than this amount, a full contribution will be paid by the Local Authority (subject to the income assessment/contribution). If your capital falls in-between these amounts, a partial contribution will be made by the Local Authority.

In 2016, the capital threshold will increase and there will be two upper capital thresholds, namely £27,000 for those who don’t own a home or where the value of your home is to be excluded and £118,000 for those that do. However, if you own your home, given the nature of house prices, it is very possible that your home could still easily exceed this amount and the Local Authority could require full payment of your Care Fees.

In addition, if you require a deferred payment of your fees, the Local Authority is currently not allowed to charge interest on this debt until a few weeks after the death of the person being cared for. However, from 2016 the system of deferred payment will become more formalised. This formalisation means that the Local Authority will have a duty to offer deferred payment to assist individuals to meet their Care costs during their life and to avoid selling their properties but, in most cases, interest will be payable from the beginning of the deferral.

Planned Cap on Social Care Costs

You may have heard that there will be a cap of £72,000 on what Pensioners will have to pay for their Care and once the cap has been reached, there will be no further contribution to pay. It has been assumed that this is therefore the maximum amount that a person will have to pay for Care – but this is not the case!

The cap does not cover accommodation and living costs which the Government has estimated will costs around £12,000 per annum. This means that the total a person would need to pay would be £72,000 plus £12,000 per year.

So , for example, if you are required to pay £30,000 per year for Care Fees and the accommodation element is around £12,000, only £18,000 will count towards the cap. This means that you will have to spend 4 years in Care before the cap is reached, i.e. £18,000 x 4 = £72,000.

By this time you would have spent 4 years paying £30,000 per year which will amount to £120,000. This is way beyond the cap and even after the cap is reached, you will still be required to pay £12,000 per year.

Conclusion

The changes are not as good as they would first seem and although some would say that there will be less of a need for a Home Protection Plan in the future, this is unlikely to be the case. We would therefore recommend looking at the value of your home, with all of the above information in mind, and obtaining advice on this very important part of Estate Planning.

 

Your capital is at risk. Investments can fluctuate in value and investors may not get the amount back they invest. Tax rules can change at any time.

 

Please remember your home or property may be repossessed if you do not keep up repayments on your mortgage. We give clients the option to pay for mortgage advice by fee rather than commission. Equity Release refers to lifetime mortgages. To understand the features and risks, ask for a personalised illustration.

 

The Financial Conduct Authority do not regulate, Will Writing, Buy to Let Mortgages, Auto Enrolment, Tax Advice and Estate Planning.

 

The opinions contained within this blog, do not constitute financial advice and no action should be taken based on this content alone.

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Redwood Financial Family Wealth & Estate Planners Ltd is Directly Authorised and regulated by the Financial Conduct Authority. FRN number 774469.

Disclaimers

The Financial Conduct Authority do not regulate, Will Writing, Buy to Let Mortgages, Auto-Enrolment, Tax Advice and Estate Planning. Your capital is at risk. Investments can fluctuate in value and investors may not get the amount back they invest. The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK. https://register.fca.org.uk/

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Email: info@redwoodfinancial.co.uk

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Redwood Financial Family Wealth and Estate Planners Ltd Company Number: 08926661
Registered Office Address: Wellesley House, 204 London Road, Waterlooville, Hampshire,