Ultimate guide to self funding care

The process of moving into a care home is never easy.   

With increasing care home costs and complex financial implications, it’s easy to get overwhelmed by the sheer number of care options available. Self-funding care offers a degree of control over those options, but it also comes with significant financial responsibilities.  

This blog aims to demystify the process of funding your own care and provide essential information and guidance for those considering self funding care.

What is self funded care?

Self-funding care refers to the process of paying for your own care rather than relying on local authority or government funding.

When you self-fund care, you have a few choices. You can choose to live in a care home where you get help all the time, or you can stay at home and have carers come to help out on a regular basis. Some people choose to have a live-in carer who stays with them all the time.

If your assets or income exceed the thresholds required for government assistance, then you will need to fund your own care.

Sometimes, people choose to self-fund care to gain more control over the quality and type of care received, as well as the timing of care arrangements. However, self funding care also requires careful financial planning and management to ensure that resources are sufficient to cover ongoing care needs.

When will you need to pay for your own care?

You will need to pay for your own care if the following applies:

• You have savings worth more than £23,250 – this is called the upper capital limit or UCL
• You own your own property (this only applies if you're moving into a care home)

If you are unsure whether you will need to fund your care costs, you can ask your council for a financial assessment, which is a means test to check if you qualify for any help with costs.

What other financial help is out there?

Even if you are self-funding care, you may still qualify for some financial assistance which can offset a portion of your care costs. These include the following:

NHS Continuing Healthcare

Anyone over the age of 18 that has a need for ongoing care that focuses on addressing and preventing health needs can apply for this. It is important to note that this type of assistance doesn't require a means test, unlike local authority funding.

NHS Funded Care

With this type of care, the NHS will pay for the nursing services component of nursing home fees.

You will need to be assessed by integrated commissioning boards (ICBs) in order to qualify for either NHS Continuing Care or NHS Funded Care. To find your local ICB, visit the NHS website.

Paying for your care

If you are paying for your own care, then the first step is to assess and analyse your financial resources, including savings, pensions and assets, to ensure that funds are sufficient to cover the cost of care over the long term.

The costs of care can vary significantly depending on the type of care required; for example, in-home care services may be more affordable than residential care in a facility, but both can add up quickly over time.

Additionally, there are important legal considerations to address, such as establishing power of attorney to ensure that someone trustworthy can make financial and care decisions on your behalf if necessary.

Properly managing these legal and financial aspects can provide peace of mind and help secure a stable future in terms of care.

Options for managing care costs

If you are self-funding care, there are several options available to help you manage your own costs. Whether you’re looking to leverage existing assets or explore alternative funding methods, there are several strategies that can help manage the often significant costs associated with elder care.

Below, we explore key options for exploring your own care:

Care annuities: Care annuities are a financial product designed to provide a regular, guaranteed income specifically to cover long-term care costs. They work by paying a one-time lump sum to an insurance provider, who in turn offers a tax-free income for life that can be used to pay for care services, whether at home or in a residential facility.

One of the main advantages of care annuities is the peace of mind they offer. By securing a steady income, you can alleviate the stress of worrying about how to fund ongoing care needs.

However, the upfront payment is typically non-refundable, meaning that if your care needs change or if you pass away sooner than expected, the remaining funds cannot be recovered.

Equity Release: Equity release allows homeowners to unlock the value of their property without the need to sell it, providing a way to fund long-term care. It is generally available to homeowners in the UK who are aged 55 or over.

The funds obtained through equity release can be used to cover the costs of care, offering a flexible solution for those who wish to stay in their home while receiving the necessary support.

However, you should be aware that the amount owed can grow quickly due to interest accruing over time, especially with a lifetime mortgage. This can reduce the value of your estate, leaving less for your heirs. Additionally, the value of the remaining equity in your home may not keep pace with rising care costs.

Investment opportunities: When planning for self-funded care, exploring investment opportunities can help maximise available funds and ensure long-term financial stability. Generally, investments that offer steady and reliable returns are considered the best options for those needing to cover ongoing care costs. However, it is important to be aware that investments often take a long time to generate a profit. So, if you are only building up an investment portfolio later in life, you may not have time to create a long-term investment strategy.

Deferred payment: A deferred payment agreement (DPA) is an arrangement with your local authority that allows you to delay paying for care costs until a later date. This option is often available to those who are eligible for state-funded care but would prefer not to sell their home immediately to cover care fees. Instead, the local authority covers the costs upfront, and the individual repays the amount when their home is eventually sold or from their estate after passing.

Self-funders should be aware that while this option can provide temporary relief, it is essentially a loan and will accrue interest over time. It’s also important to understand that not all costs may be covered, and the local authority typically contributes only towards the cost of care, not living expenses or additional services.

Rent out property: Renting out property can be an effective way to generate income to cover care costs, but it comes with both risks and rewards. Rental income can provide a steady cash flow that helps manage ongoing expenses without selling the property. This allows the homeowner to retain ownership, potentially benefiting from future property value appreciation.

However, being a landlord comes with responsibilities such as property maintenance, dealing with tenants, and potential periods of vacancy, which can reduce income. There’s also the risk of property values fluctuating, which might impact your overall financial security. Self-funders should consider the time, effort, and costs associated with being a landlord, as well as the possibility of needing to sell the property later if rental income is insufficient to cover care costs.

Sell your property: Selling your property is a straightforward way to access funds for care. The most immediate reward is the lump sum received from the sale, which can be used to cover care costs or invested to generate ongoing income. However, selling a home can be emotionally challenging, especially if it holds sentimental value.

There’s also the risk of selling in a down market, which could result in a lower-than-expected return. Additionally, once the property is sold, there is no longer an asset to fall back on if care needs change or if additional funds are required later.

Services like Spring are available to purchase your home swiftly, regardless of its condition.

How much will care cost?

The cost of care can vary widely depending on the type of care required, the level of support needed, and the location. Nursing care is pricier than residential care and specialist care, such as for dementia, may incur additional charges. It's crucial to research and plan for these expenses early, as they can quickly add up over time, significantly impacting your financial resources. Consulting with care providers and financial advisors can help you better understand and prepare for the specific costs you may face.

Benefits self-funders can claim

Even if you are self-funding your care, you may still be eligible to claim certain benefits to help offset some of the costs. For example, Attendance Allowance is a non-means-tested benefit for those over 65 who need help with personal care due to a physical or mental disability. Similarly, Personal Independence Payment (PIP) is available for individuals under 65 with long-term health conditions.

Depending on your circumstances, if you have someone providing care for you on a regular basis, they might also qualify for Carer’s Allowance which can help to offset some of the financial costs associated with funding your care. In the October 2024 Budget, the government announced that Carer's Allowance will be increased to 16 hours at the National Living Wage. This means that the allowance will be worth an additional £45 a week from April next year. 

Additionally, if you live in a residential care home and your savings fall below a certain threshold, you might be able to access some level of local authority funding or claim benefits like Pension Credit, which can help with day-to-day living expenses. It’s important to explore all available options, as these benefits can make a significant difference in managing care costs.

Key takeaways on self funding care

Self-funding care is a significant decision that requires careful planning and consideration. By understanding your financial options, you can better manage the costs associated with long-term care. While the process can be complex, taking proactive steps and seeking professional advice can help ensure that you receive the care you need without compromising your financial stability. Remember, being informed and prepared can make all the difference in navigating the challenges of self funding care.

Looking for a care home?

If you need help in finding a suitable care facility, all you need to do is fill out a short form to receive a FREE shortlist of the best care facilities for you.

You can also receive more personalised assistance with local care services or guidance on funding and benefits. Reach out to Autumna’s helpful advice team on 01892 335 330.