Long-term care is the financial planning subject that most people avoid until they cannot. It is also one of the most financially consequential: care costs can erode substantial wealth in a short period, and poor planning — or no planning at all — can result in a family home being sold against the wishes of the family, or a surviving spouse left with inadequate resources.
This guide sets out what care costs in practice, how the state funding system works, and the financial planning tools available.
The Cost of Care in 2026
Care costs vary significantly by geography, type of care, and quality of the home. Broadly:
- Residential care home (personal care only, no nursing): £35,000–£50,000 per year, with significant variation; London and the South East substantially above average; rural areas somewhat below
- Nursing home (with registered nursing input): £50,000–£80,000 per year; higher for specialist dementia care or complex medical needs
- Premium and luxury care homes: £100,000–£200,000+ per year for the most expensive establishments in London and major cities
The duration of care is entirely unpredictable. Average time in a care home at entry is approximately two to three years, but individual outcomes vary enormously: some residents require only months of care, others remain for ten years or more. A couple both potentially requiring care compounds the financial risk.
The total cost of care for one individual can therefore range from £50,000 to over £500,000. This is not a marginal sum — for many families it represents a material proportion of accumulated wealth.
How State Funding Works: The Means Test
Local authority funding for residential care is available, but only to those with limited assets. The means test works as follows:
The Capital Threshold (England, 2026)
- Above £23,250 total assets: no local authority funding; you are a full self-funder. The local authority does not contribute, and you pay the full cost of care
- Between £14,250 and £23,250: you contribute to your care costs on a sliding scale (a "tariff income" of £1 per week is assumed for every £250 of capital in this band). As your assets diminish through paying for care, your contribution reduces until you reach the lower threshold
- Below £14,250: capital is no longer taken into account; the local authority funds the cost of care (at its standard rate) and you contribute your income (pension, state pension, etc.), retaining a "personal expenses allowance" (£30.15 per week in England for 2025/26)
These upper (£23,250) and lower (£14,250) capital limits have been frozen since 2010. A planned reform that would have raised the upper limit to £100,000 from October 2025 was scrapped by the government in 2024, so the long-standing limits continue to apply. The thresholds in Scotland, Wales, and Northern Ireland differ; take advice in the relevant jurisdiction.
What Counts as Assets
The means test includes virtually all capital assets:
- Cash and savings accounts
- Investments (shares, ISAs, investment bonds)
- Property other than the main home (see below)
- Income-generating assets
Income (pension income, state pension, rental income) is assessed separately and largely contributed toward care costs above the personal expenses allowance.
Property and the Means Test: The Key Exemptions
The family home is excluded from the means test while:
- The spouse, civil partner, or partner is still living in the property
- A dependent child under 18 is still living in the property
- A carer who is a relative aged 60 or over is still living in the property (and has been doing so)
- A disabled or incapacitated relative is still living in the property
If none of these exemptions apply — for example, a single person without a spouse or dependent children — the family home is included in the means test and its value counts toward the capital threshold. In practice, the property may need to be sold to fund care costs.
The inclusion of the family home in the assessment for single people is one of the most significant sources of financial shock for families. If a parent assumed the family home would be protected and passed to the children, they may find it is consumed by care costs in its entirety.
Deprivation of Assets
The local authority can set aside a transaction if it was undertaken with the "deliberate intention" of reducing assessable assets to obtain local authority funding. This is the "deprivation of assets" rule. It applies to:
- Gifts of property to children
- Transfers into trust
- Spending capital on non-essential items
If a local authority believes that a transaction was made with the primary purpose of avoiding care funding, it can treat the individual as still possessing those assets for means-testing purposes.
The rule applies regardless of when the transaction occurred, though in practice authorities focus on transactions made when the need for care was reasonably foreseeable. Transfers made in genuine good health, well before any care need is anticipated, are less likely to be challenged — but there is no absolute "safe harbour" period. Taking legal advice before making significant transfers specifically motivated by care funding concerns is essential.
Deferred Payment Agreements
Where a care home resident owns property but the property is not yet sold, the local authority can enter into a deferred payment agreement (DPA) — a formal arrangement under which:
- The local authority pays the care costs in the meantime
- A legal charge is placed on the property
- When the property is eventually sold (including on the resident's death), the local authority recovers the accumulated amount plus interest
The DPA is useful where the family wants to retain the property for a period — perhaps hoping the resident will return home, or wanting time to make an orderly sale. Interest accrues at the local authority's specified rate; this cost should be factored into the decision.
Immediate Needs Annuities (Care Annuities)
An immediate needs annuity (sometimes called a care fee annuity or immediate care plan) is an insurance product specifically designed for people who have already entered care and need to fund ongoing costs.
The structure:
- A lump sum premium is paid to an insurer
- The insurer pays a guaranteed income for the rest of the individual's life, paid directly to the care home
- The income is free of UK income tax when paid directly to a registered care provider
The amount of premium depends on the current weekly care cost, the insurer's assessment of the person's health and life expectancy, and current interest rates. Because the annuity is priced on a short life expectancy (care home residents typically have reduced life expectancy), the income rate can be high relative to the premium.
Key benefit: the income is guaranteed for life. The risk of outliving your savings — of a person requiring care for 10 or 15 years and running out of money — is transferred to the insurer. This removes the most catastrophic scenario from the family's financial planning.
Limitations:
- If the resident dies quickly after the annuity is purchased, the premium is not recovered (unless a capital protection option is included, which increases cost)
- The premium is typically £200,000–£500,000 for meaningful lifetime cover
- The product is only appropriate after care has commenced, when the level of care and a realistic cost are established
Immediate needs annuities are purchased through specialist independent financial advisers who are qualified in care funding. They are not suitable for all circumstances, but for individuals with capital above £200,000 facing open-ended care costs, they can be transformative.
NHS Continuing Healthcare
NHS Continuing Healthcare (CHC) is full NHS funding of care costs where an individual's primary need is a healthcare need (rather than a social care need). The key point:
- CHC is free to the individual — the NHS pays the entire cost of care
- It is determined by a multidisciplinary assessment of health needs, not by financial means
- Qualification is demanding: most care home residents do not qualify; CHC is intended for those with complex, unpredictable, intensive healthcare needs
- Funded care can be in a nursing home, hospital, or the individual's own home
If a family believes a relative may qualify for CHC, they should request a formal assessment. Local authorities sometimes incorrectly place people in means-tested social care when CHC would be appropriate. Specialist CHC advocacy services exist to support families in challenging incorrect assessments.
Pre-Planning: What to Do Before Care Is Needed
The earlier care funding planning begins, the more options are available. Key steps:
Lasting Power of Attorney (LPA)
Establishing an LPA is the single most important step. There are two types:
- Property and Financial Affairs LPA: authorises the attorney to manage bank accounts, investments, property, and other financial matters when the person cannot
- Health and Welfare LPA: authorises decisions about medical treatment and care arrangements
LPAs must be registered with the Office of the Public Guardian before the person loses capacity. If a person loses capacity without an LPA in place, the family must apply to the Court of Protection for a Deputyship order — a slower, more expensive process with ongoing Court supervision.
Investment Planning
Setting aside a portion of savings specifically for care — in accessible, capital-stable investments — creates a designated reserve. This reduces the risk of having to liquidate long-term investments at short notice to meet care bills.
Insurance
Long-term care insurance (pre-funded, taken out years before care is needed) exists but is expensive and limited in availability. The market has largely retreated from this product. For most people, self-funding with appropriate reserves is the realistic approach.
How Global Investments Can Help
Planning for the financial impact of care requires a clear-eyed view of your assets, your family circumstances, and the realistic range of care costs and durations. It also intersects with inheritance tax planning, estate distribution, and the protection of surviving spouses.
Global Investments works with clients and their families to think through care funding as part of a broader financial and estate plan — identifying how assets would be deployed in different care scenarios, what role an immediate needs annuity might play, and how to ensure a surviving spouse is not left without adequate resources.
Rules on care funding and NHS Continuing Healthcare can change. This article reflects the position in England as at June 2026. Rules differ in Scotland, Wales, and Northern Ireland. This article is provided for general information only and does not constitute financial, legal, or social care advice. Always take qualified professional advice specific to your circumstances.
To discuss care funding planning, please contact our team.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.