Care Home Funding and Financial Planning: What You Need to Know

The cost of long-term care is one of the most significant financial risks facing older individuals and their families, yet it is among the least planned for. Unlike other risks that insurance markets have historically absorbed, care funding sits in an uncomfortable space between state provision and private responsibility — and the current system requires many people to fund their own care until they exhaust almost all of their assets.

This guide explains how the UK care funding system works, what planning options exist, and where the boundaries are.

The Scale of the Problem

Average UK care home costs in 2026 vary significantly by region, type of care, and quality of facility:

• Residential care (personal care, no nursing): approximately £1,000–£1,400 per week in England, with London and the South East materially higher.
• Nursing care (residential plus nursing provision): approximately £1,200–£1,800 per week, again varying by region.

At £1,200 per week for residential care, the annual cost is around £62,400. The average length of stay in residential care is approximately 2.5 years; for nursing care it is typically longer. However, these are averages — a significant minority of individuals require care for five, ten, or even fifteen years, producing lifetime care costs well in excess of £300,000–£500,000.

For a family that has spent decades accumulating assets — paying down a mortgage, building savings, investing through pensions and ISAs — the prospect of those assets being spent on care fees represents a fundamental challenge to intergenerational wealth transfer. Planning ahead is essential.

The Local Authority Means Test

If an individual cannot afford their own care, they may be eligible for local authority funding support. Eligibility is determined by a means test. In England, the current thresholds are:

• Below £14,250 in assessable assets: the local authority funds the full cost of care (at the rate it has agreed to pay, which may be less than private-pay rates at the preferred care home — the difference must be funded separately through a "top-up" arrangement).
• £14,250 to £23,250: the individual makes a contribution toward care costs based on a formula; the local authority funds the remainder.
• Above £23,250: the individual funds their own care in full ("self-funding"). The local authority has no obligation to contribute.

Wales, Scotland and Northern Ireland have different thresholds and rules — in Scotland, personal care (as distinct from accommodation costs) is free at the point of need, regardless of means. These differences make the system complex for people who move between the nations.

What Counts as Assessable Assets?

The means test includes most capital assets:

• Cash savings and current accounts.
• Stocks, shares, investment bonds and ISAs.
• Buy-to-let property and second homes.
• Rental income from investment property (treated as income, not capital).
• Certain business assets (though trading business interests may have protections).

The primary home is excluded from the means test in the following circumstances:

• If a spouse, civil partner, or qualifying relative (partner over 60; child under 18; dependent adult child) still lives in it.
• During the first 12 weeks of care (the "12-week disregard") — this gives families time to make arrangements.

If the home cannot be excluded, its value is included in the means test and the local authority will expect it to be used to fund care costs. This is the situation most families fear: a forced sale of the family home to pay for care.

Deferred Payment Agreement

A Deferred Payment Agreement (DPA) is a mechanism that allows the local authority to fund care costs and take a legal charge over the home instead of requiring an immediate sale. The individual — or their estate — repays the accumulated debt after death, when the property is sold.

How it works: the local authority agrees to pay for care (up to its standard rate) and registers a charge over the property. Interest is charged on the accumulated debt, at a rate set by regulation (broadly comparable to a commercial loan rate). The property does not have to be sold during the person's lifetime.

The DPA does not reduce the total cost of care — the full amount, plus interest, is repaid from the estate. What it does is preserve the option of remaining in care without selling the property during the person's lifetime, and ensure that any family members living in the home are not immediately displaced.

DPAs are not automatic — the individual must apply, and the local authority assesses eligibility. They apply only to the local authority's contribution and do not cover any top-up above the LA rate.

Immediate Needs Annuity

An immediate needs annuity (also called a "care fee annuity" or "care annuity") is an insurance product purchased with a lump sum that provides a guaranteed income paid directly to the care provider for the rest of the individual's life. The key features are:

• The income is paid for life — if the individual lives far longer than expected, the insurer bears the longevity risk.
• Income paid directly to a registered care provider is tax-free under current rules.
• The lump sum premium is determined by the individual's age, health, and the assessed cost of care.

For individuals with liquid capital — savings, investments, or proceeds of a property sale — an immediate needs annuity provides certainty that care costs will be met for life, regardless of longevity. It does not preserve the capital for inheritance, but it provides the family with the assurance that care will be paid for without further financial drain.

The tax-free status of the income (when paid directly to the care home) makes the product significantly more efficient than using investment income subject to income tax. In practice, the effective return on the premium can be considerably better than an equivalent income stream held as investments and drawn down.

Immediate needs annuities should be arranged through a specialist care fees adviser, as the market is not widely accessed through standard independent financial advisers.

Deliberate Deprivation of Assets: The Key Warning

A common misconception is that giving assets away before needing care — to children or other family members — protects them from the means test. This is not a reliable strategy and carries real risks.

Both local authorities and NHS continuing healthcare assessors have the power to investigate whether assets were transferred with the "intention" of avoiding care costs. If a local authority determines that a transfer was a deliberate deprivation of assets for this purpose, it can:

• Treat the transferred assets as if they still belong to the individual for means-test purposes (the "notional capital" rule).
• Seek repayment from the recipient of the transfer.

There is no fixed time limit — the concept of "deliberate deprivation" can apply to transfers made many years before care was needed, if the intention can be shown to have been avoiding care costs. The test is intention, not timing, though a transfer made 10 years before care is needed is harder to challenge than one made 10 days before.

This does not mean that all lifetime gifts are prohibited — ordinary estate planning and family gifts unconnected with care funding remain legitimate. The risk arises where the connection between the transfer and anticipated care needs is clear. Professional advice before making significant transfers is strongly recommended.

NHS Continuing Healthcare

For individuals with a "primary health need" — a complex or serious health condition requiring significant nursing care — the NHS may fund the full cost of care through NHS Continuing Healthcare (CHC). CHC funding is needs-based, not means-tested: it does not depend on the individual's financial position.

Eligibility for CHC is assessed using the National Framework for NHS Continuing Healthcare. The assessment is complex, and many eligible individuals and families are not aware of the entitlement or do not pursue it. Specialist CHC advocacy services exist to assist families through the assessment and any appeal process.

Power of Attorney: Acting Before Capacity Is Lost

All financial planning for care must be done — or at minimum prepared — while the individual has mental capacity. Once capacity is lost, a Lasting Power of Attorney (LPA) for property and financial affairs is required for anyone to manage the individual's finances on their behalf.

If no LPA is in place when capacity is lost, the family must apply to the Court of Protection to be appointed as a deputy. This process is slow (typically 6–12 months), expensive, and does not guarantee approval. During the application period, financial accounts may be frozen and care funding arrangements difficult to implement.

Registering LPAs — for both property/financial affairs and health/welfare — while healthy and with capacity is one of the most important protective steps any individual can take.

How Global Investments Can Help

Global Investments advises individuals and families on planning for the cost of care as part of a comprehensive later-life financial strategy. We work with specialist care fees advisers on immediate needs annuities and with solicitors on LPAs and estate planning. If care costs are a concern for you or your family — now or in the future — please contact our team for a confidential conversation.