Responsibility for funding

Long term care (also known as social care) may be required when individuals become ill or suffer a disability that means they are unable to care for themselves, with the probability that the disability will continue over the long term.

The rules on the provision of long term care are complex and different rules apply in England and Northern Ireland, Scotland and Wales.

In general the local authority is responsible for:

• The assessment of an individual's care needs, such as their needs for nursing care; and
• The assessment of an individual's ability to pay for their care.

Each local authority will have a maximum rate they will contribute based on the type and level of care needed. Where the cost of the individual's chosen care home exceeds the local authority maximum rate, the individual or their family will be required to meet the excess. The local authority will also look to recover some or all of the costs from the individual based on a financial assessment of their income and capital.

Means Testing

Once the care needs assessment is completed, a financial assessment (means test) is carried out to determine whether the individual is able to self-fund their care costs. The means test includes income, capital and any property owned.

Income assessment

Income is assessed to establish a person's ability to pay for their care, regardless of the amount of capital they have. A small amount of income can be kept as a Personal Expenses Allowance to pay for items such as newspapers and toiletries and is excluded from the assessment.

The following income is fully included:

• Most social security benefits
• Attendance Allowance and Disability Living Allowance care component (permanent residents)
• Pension income, State and private (see disregarded income for exceptions)
• Annuity income (not home income plans)
• Trust income where there is a right to receive the income or if a discretionary trust income is distributed to the applicant

Notional income

Notional income includes income that applicants deliberately deprive themselves of or fail to claim. For example, people who have reached pension credit age and have a personal pension or retirement annuity contract and have not yet purchased an annuity or taken an income from the plan will be deemed to have notional credit.

Disregarded Income

• 50% of private pension - a person can choose to pass this to a spouse or civil partner still living at home
• Investment income - dividends, interest are included in the capital assessment
• Mobility part of Disability Living Allowance and Personal Independence Payment

Capital assessment

* Tariff Limits

Capital amounts which sit between the upper and lower limits are assessed as providing £1 of additional income for every £250 of capital above the lower limit. Tariff Income is then added to a person's other income for the income means test.

Assets included in capital assessment:

• Land and buildings
• Stocks & shares, unit trusts and OEICs
• Cash
• ISAs
• The family home (see below when this may be disregarded)
• Assets held in an absolute trust where the person is a beneficiary
• Assets held abroad
• Businesses

Notional capital can be included where someone has deliberately deprived themselves of capital.

Disregarded capital

Certain capital may be disregarded by the local authority. This includes:

• The family home during the first 12 weeks of care
• The family home where there is a dependent spouse, civil partner or relative who lives there
• Capital in an interest in possession or discretionary trust you are a beneficiary of
• Personal injury settlements in trust or held by the Court of Protection
• Life assurance policies

Deliberate deprivation

Deliberate deprivation occurs when a person intentionally reduces their capital and income so assets are not included in the means testing for long term care funding.

Examples of this are:

• Gifting assets (outright or to a trust)
• Selling assets below the market value
• Purchasing assets that are excluded from the financial means test
• Transferring ownership of home to someone else
• Investing in an investment bond shortly before a claim for long term care
• Failure to claim capital or income, for example:
  
  
• • Unclaimed pension rights
  • Giving up a legacy via deed of variation

If the local authority thinks deliberate deprivation has occurred, they may include the value of your assets in the means test. They will look at the timing assets are reduced and the intention behind this to establish if deliberate deprivation has taken place. A local authority has powers to recover assets that are gifted or transferred within six months of a person moving into residential care, or while they are already living in a care home.

Means testing of pensions and savings

Most savings are included within the capital means test. However, the treatment of life assurance policies (including investment bonds) and pensions is set out in the Department of Health Care and Support Guidance.

Investment bonds

Investment bonds which include a small element of life cover (potentially as little as 0.1%) are disregarded from the capital means test. Capital redemption bonds have no life assurance element so are included.

However, regular withdrawals taken from a bond will be included within in the income assessment.

Deliberate deprivation

The local authority may state deliberate deprivation has occurred if the motive for investing in a bond is to avoid the capital being included in the means test.

For example, if a person in ill-health moves capital into an investment bond before making a claim to their local authority for care fees funding then the council may include this capital in the means test.

A person may invest in a bond for tax planning, investment choice or performance. If the person is in good health at the time of the investment and social care is not imminent the local authority is less likely to apply the deliberate deprivation rules.

Pensions

Pension income will be included in the assessment. However, the capital is typically disregarded unless someone has failed to access pension benefits which they are entitled to.

The Department of Health's guidance states:

If a person is only drawing a minimal income, or choosing not to draw income, then a local authority can apply notional income. This must be the maximum income that could be drawn under an annuity product. If applying maximum notional income, any actual income should be disregarded to avoid double counting.

If a person is drawing down an income that is higher than the maximum available under an annuity product, the actual income that is being withdrawn should be taken into account.