Paying for Care in Later Life Explained

If someone needs care — either in their own home or in a residential setting — the local authority first carries out a needs assessment to establish what care is required. It then carries out a financial assessment, commonly called the means test, to establish who pays for it.

The means test in England works around two capital limits, which have been unchanged in cash terms since April 2010:

• Upper capital limit: £23,250. If your capital is above this, you are expected to meet the full cost of your care yourself. You are a "self-funder".
• Lower capital limit: £14,250. If your capital is below this, your capital is ignored and only your income is taken into account when working out what you contribute.

Between the two limits, a sliding scale applies. For every £250 of capital (or part of £250) above £14,250, the local authority assumes you have £1 a week of additional income. This is known as \"tariff income\", and it is assumed regardless of what your capital actually earns.

The practical effect is a hard edge at £23,250. Above it, you pay for everything; below it, the local authority begins to contribute.

Capital generally includes savings, investments, stocks and shares, ISAs, premium bonds, and property — including, in many circumstances, the home.

Income generally includes the state pension, private and workplace pensions, most benefits and any income from investments. Where someone is in residential care and the local authority is contributing, most of their income is taken towards the cost of care, but they are left with a small weekly personal expenses allowance.

One point that catches people out: pension pots that have not yet been drawn can still be taken into account in the means test if you are over pension age. Choosing not to access a pension does not automatically place it outside the assessment.

The treatment of the home is the single biggest issue in most families' care planning.

If someone moves permanently into residential care, the value of their home is normally counted as capital — which, for most homeowners, immediately places them above the £23,250 upper limit and makes them a self-funder.

However, the home is DISREGARDED (not counted) if it continues to be occupied by:

• a spouse, civil partner or partner
• a relative aged 60 or over
• a relative who is incapacitated
• a child of the resident aged under 18
• in some circumstances, a former partner who is a lone parent

There are also two important mechanisms:

• The 12-week property disregard. When someone first moves permanently into residential care, the value of their home is ignored for the first 12 weeks, giving time to make arrangements.
• Deferred payment agreements. A local authority can agree to pay the care fees and place a legal charge on the property, with the accumulated cost repaid later — usually when the property is sold or from the estate. Interest is charged. This can avoid a forced sale of the home during someone's lifetime.

If care is being provided in someone's own home rather than in a care home, the value of that home is not counted as capital.

Many people still plan on the assumption that there is a cap on lifetime care costs. There is not.

Charging reforms legislated for in 2021 would have introduced an £86,000 lifetime cap on personal care costs and raised the upper capital limit to £100,000. Those reforms were cancelled by the government in July 2024 and are not in the current legislative programme. An independent commission into adult social care is examining longer-term reform, but no cap is in force and none is currently scheduled.

The planning consequence is important: there is currently no ceiling on what an individual may pay for their own care. Care costs should be treated as an open-ended risk, not a capped one.

Giving away money or property to bring capital below the means test threshold is treated very seriously by local authorities, and the rules are stricter than the equivalent inheritance tax rules.

If a local authority decides that someone has deliberately deprived themselves of assets in order to reduce their care contribution, it can carry out the means test as if they still owned those assets — the \"notional capital\" rule. It can also, in some cases, seek to recover the cost from the person who received the gift.

Two differences from inheritance tax planning matter here:

• There is no seven-year rule. The seven-year rule applies to inheritance tax on gifts, not to the care means test. A local authority can look back at a gift made many years earlier if it concludes the intention was to avoid care costs.
• Intention and timing are what count. The question is whether avoiding care charges was a significant motivation, judged partly on whether care was foreseeable at the time of the gift.

This is why arrangements marketed as protecting the home from care fees — including certain trust structures — need to be approached with real caution. Our articles on gifting money to family and the seven-year rule for gifts explain how gifts are treated for inheritance tax, which is a different question with different rules.

Not all support depends on your capital.

• NHS Continuing Healthcare. If someone's needs are primarily health needs rather than social care needs, their care may be funded in full by the NHS. This is assessed on need, not on wealth, and it is not means-tested. The assessment threshold is high, but it is always worth establishing whether it applies.
• NHS-funded nursing care. Where someone in a nursing home needs care from a registered nurse, the NHS pays a flat weekly contribution towards that element, regardless of means.
• Attendance Allowance. This is a non-means-tested benefit for people over state pension age who need help with personal care. It is not affected by capital or income.