How much you will need to pay for care

Care home costs have increased 10 per cent over the past year, from an average of £1,069.12 to £1,176.20 per week, or £61,162.40 per year, according to recent Office for National Statistics data. And the cost of care is likely to continue rising for reasons including difficulties in recruiting staff and the recent increase in the living wage.

Although the government plans to introduce a total lifetime cap on the cost of care in England of £86,000 in 2025, you may have to pay far more. This cap will cover care costs such as assistance with washing, dressing or managing health problems, but not daily living costs such as accommodation, food, entertainment and utility bills.

And not all care costs incurred will count towards the £86,000. “The amount counted towards the cap will be the amount it would have cost the local authority if it had been meeting the person’s eligible care needs,” explains Lisa Morgan, partner at Hugh James Solicitors. “When someone requires long-term care, the local authority will assess [their] needs and finances to complete an independent personal budget. The local authority will set out how much it would be spending if it were paying for the person’s care and maintain a care account to keep track of a person’s progress towards the cap.”

So, for example, if you go into a more expensive care home than your local authority would use, the full care costs will not count towards the £86,000 cap.

And if you spend many years in a nursing home you may spend significantly more than £86,000. “For example, someone who lives for five years in a care home with £24,000 personal care costs and £36,000 accommodation costs [a year] could end up spending £86,000 on personal care and £180,000 on accommodation costs – £266,000 in total,” says Alice Guy, head of pensions and savings at Interactive Investor.

What’s changing in 2025?

From 2025, if you have eligible assets worth over £100,000 you will not receive support towards paying care home fees. If you have capital worth between £20,000 and £100,000 you will be charged a tariff income of £1 per week for every £250 in capital you have between the lower and upper thresholds. If your assets are worth less than £20,000 you will not have to contribute to care costs from your capital.

Your home doesn’t count as an eligible asset if you receive care there rather than in a home, and/or if your spouse, civil partner or partner, or qualifying family continue to live there.

Defined-contribution pensions such as self-invested personal pensions (Sipps) don’t count as capital to determine whether you get help to fund care. However, “they will be included in determining the income [you] receive and could use to cover the cost of care, whether income is being drawn from the pension or not”, explains Nicholas Hamilton, chartered financial planner at Mazars. “If [you are] only drawing a minimal or not drawing income, a local authority can apply notional income based on the maximum you would receive [from] an annuity.”

Investment bonds with a life assurance element and the value of life policies also do not usually count towards the £100,000 limit.

Your assets will be assessed according to what you own rather than what your partner owns, so even if they hold eligible assets worth more than £100,000, it won’t count towards the limit for receiving help with your care costs. However, your share of jointly owned eligible assets will count. So if you are in a couple it could be worth dividing your assets more equally between you rather than one partner holding the majority. This also makes sense from a tax perspective as it enables both of you to make more or full use of your allowances.

But if you are, for example, widowed or divorced and have inherited or received assets from a spouse which you hold alone, their value will be more likely to breach £100,000. So Zoe Taylor, chartered financial planner at St James’s Place, suggests severing tenancy to ensure your home is not fully taken into account.

“There are two ways in which you can own property jointly in England and Wales – Joint Tenants or Tenants in Common,” she explains. “Under a joint tenancy, each owner has a share in the property and all owners are equally entitled to the whole property. When the first owner dies, the property automatically passes to the second owner so that they end up owning all of it. If they subsequently go into care, the full house value can be assessed and used for paying care home fees. However, if you sever the tenancy and create a tenants in common arrangement, you still own the property jointly but each have a 50 per cent share. So you can leave your share of the property in your will to whoever you wish while allowing the survivor to live in the property. Married couples [could] sever the tenancy agreement to own the property as tenants in common and leave their share to their children, so that half the property is ring-fenced for future inheritance. If the surviving spouse needs care the financial assessment would only include the survivor’s half-share in the property.”

There is no guarantee that the cap and new thresholds will be implemented in 2025: they were originally meant to be implemented in October this year so could be delayed again or amended. So this is another reason why you should be prepared to cover a substantial sum for possible care costs.

At present, you are not eligible for local authority help with your care costs if your assets are worth more than £23,250 in England and Northern Ireland, or £50,000 if you receive care in a care home in Wales. In Scotland this is £29,750 or £24,000 if you receive care in your own home. Families often take out a lifetime mortgage or sell their home to pay for care home fees.

If you run out of money when you are already receiving care, you need to be reassessed by your local authority. If your capital drops below the maximum threshold you may start to receive state funding. But as it can take time for new funding arrangements to be set up, advisers at Evelyn Partners suggest that you or your family contact your local authority a few months before your assets are likely to dip below this amount to ensure a smooth transition from self-funding to local authority funding.

Working out how much it will cost

The exact amount you will pay partly depends on where you go into care. If you have a specific home in mind, it could be worth budgeting what you will need for it, bearing in mind inflation. Or see what the average cost is in your area and save with that in mind. You can get an idea of this on UK Care Guide’s website at https://ukcareguide.co.uk/rise-in-care-home-costs/. Between December 2022 and February 2023, UK Care Guide surveyed care homes that take on privately funded residents and would typically be regarded as mid to premium-level across the largest cities in the UK. It found that, for example, the average annual cost of a care home is £57,928 in London, £53,222 in Brighton and £51,723 in Bristol, but £35,984 in Cardiff, £39,789 in Newcastle and £40,903 in Nottingham.

The cost varies significantly depending on the type of care you need and how long you need it for, and the way you own assets could significantly impact how much you pay. “For example, someone single with a home worth £300,000 and £200,000 in savings will be classed as having £500,000 in assets if they go into a care home," explains Guy. "In contrast, someone whose partner still lives in their home and has £150,000 in a pension pot and £50,000 in savings will be classed as having £50,000 qualifying assets, and could receive help towards their costs based on the new rules proposed in 2025.

The median length of time people spend in residential care is 97 weeks according to government figures. It estimates that only around 13 per cent of older adults who enter a care home are there for five years or more and 2 per cent for 10 years or longer.

Next week we'll explore the wide range of options for funding care