Will you be able to afford rising care home costs?

UK care home fees continue to rise, with recent research showing that annual residential care costs average around £73,000, while nursing care costs are approximately £81,000 per year.¹ Are you and your family prepared?

Although we all know the cost of care in later life could be significant, few people realise the true extent of care home costs or adequately plan how to pay for them. Having a comprehensive wealth strategy in place can ensure you are financially prepared if you require long-term care in the future.

In England, unless you have significant ongoing health needs, people with assets worth more than £23,250 are currently expected to pay their care home costs themselves.

The UK government, when Boris Johnson was Prime Minister, did announce a proposal to increase this threshold to £100,000, along with a lifetime cap of £86,000 on personal care costs. This was initially proposed to be introduced in October 2023 but has now been pushed back to October 2025 with no guarantee that it will ever come into effect.

Even if the current Labour government stick to the proposed date this year, it is worth noting that the £100,000 asset threshold is means-tested and could include the value of your home. Also, the £86,000 cap is only on personal care costs – meaning that individuals would still be expected to pay for all other care-related costs, including accommodation, food, utilities and consumables.

At Canaccord Wealth, we would encourage making contingency plans for your care costs regardless of changing legislation, whether that is for a care home or care at home.  Having money earmarked for your later life care could give you greater peace of mind and the means to choose the best option.

¹Care Home Costs & Care Fees UK Average For 2025 | Lottie

How can you plan ahead for care costs?

If you are worried about later life care costs, whether for yourself or an older family member, expert wealth planning can help you set up a care costs plan. This will give you peace of mind and save you and your family worrying about how you will manage to pay for your care home costs, if and when the time comes.

If your circumstances change and residential care is needed for you or another family member, it’s so important to make sure your adviser takes a holistic view of your total wealth. They can set up a financial care costs plan to see you, or your family member, comfortably through the rest of life. There are a number of ways this can be achieved, including care home tax planning for capital maintenance and help with your inheritance plans, or an annuity for care home fees.

Care home tax planning: This involves implementing strategies to manage the tax implications associated with funding and paying for care home expenses. These strategies aim to optimise financial resources while ensuring that individuals receive necessary care without undue tax burdens.

Annuities for care home fees: These are financial products designed to help individuals cover care home costs in retirement. With a care home annuity, you pay a lump sum of money to an insurance company, just like buying any other annuity. In return, the insurance company pays you a regular income for the rest of your life. The cost of an annuity is based on an assessment of your medical records (including your life expectancy), and the calculated annual income.

It's worth noting that annuity income can also be tax free if it’s paid directly to a registered care provider. They also offer flexibility, including options for spouses and inflation protection.

Seek advice on how to plan now and pay later for your care costs

Of course, when you or any other family members need care, planning what to do can be very stressful. You’ll be faced with many decisions and may be unsure where to start or who to talk to, particularly when it comes to sorting out how to pay for care as long as it’s needed.

At Canaccord Wealth, our team of independent Wealth Planners includes experts who are specially qualified to provide advice in this area and some who are trusted accredited members of SOLLA (Society of Later Life Advisers). Please contact us if you would like an initial conversation to discuss your personal circumstances or for a family member who might need to go into a care home. We can set up a video call to include different family members if that would help. 

Our care home financial plan for Janet

1. Set up a £400,000 care fees annuity to provide £66,000 pa (guaranteed for life), rising by 5% pa*.
2. Keep £100,000 in cash for emergencies.

The priority is to cover Janet’s care fees. The immediate care annuity would increase each year by 5% to cover the rising care costs – obviously the care costs might increase by more than 5% each year, but at least this should help. She would also benefit from capital protection, which would repay a portion of the lump sum if she were to die within six months. As this income is paid directly to the care home, it’s tax free. This would also apply if Janet were receiving care at home from a registered care provider.

We always recommend keeping a cash buffer for emergencies, which would usually be calculated to provide between three and six months’ income. However, as Janet is retired and in care, our specialist advised her to set aside a larger amount.

The remaining £1.5m could be distributed across a combination of the following:

1. As the care costs are now being covered, Janet could provide outright gifts to her family (see Making gifts to her children below).
2. She could invest some funds in her own name, in case the care costs increase faster than expected, or if she needs extra nursing care.
3. Invest in inheritance tax (IHT) efficient assets making use of Business Relief – these should become free of IHT liability after two years under current legislation – this could be subject to change.
4. Place some assets in trust – these should become IHT free after seven years (again, this could change).

Janet’s choice of solutions will depend on several factors, including her health, how much control she wants to retain, whether she might need further income in the future, and her attitude to risk.

* This is an indicative cost and we review each case individually, considering each client’s health and their ability to undertake daily activities, as well as other variables.

Making gifts to her children

An outright gift must be made without reservation and Janet needs to live for seven years after making it if she wants it to remain free of inheritance tax. If she dies within that time, it will be included in her estate for IHT purposes, and her family will have to pay tax on it.

If Janet starts to lose her capacity for making decisions, her ability to transfer assets will be severely curtailed.

We also made sure that Janet was claiming what she was entitled to (e.g. attendance allowance). If her condition deteriorates, Alison should ensure that Janet’s position is assessed again to see if she is entitled to NHS Continuing Healthcare.