Care home fees reducing estate value

Yes, care home fees can have a very significant impact on what is left in an estate, and this is one of the most common concerns people have when planning for later life or dealing with a relative's finances.

How care home fees affect an estate:

Local authorities in England carry out a financial assessment (often called a means test) to determine how much a person should contribute towards the cost of their residential care. The rules are set out in the Care Act 2014 and the Care and Support (Charging and Assessment of Resources) Regulations 2014, supported by the Department of Health and Social Care statutory guidance.

The key thresholds (as of 2024/25) are as follows.

1. If the person has assets (including property in most cases) above the upper capital limit of £23,250, they are expected to meet the full cost of their care. This is often called being a self-funder.

2. If their assets fall between £14,250 and £23,250, the local authority will contribute but the person will still pay a means-tested contribution, including a tariff income of £1 per week for every £250 of capital above £14,250.

3. If their assets are below £14,250, the local authority pays the majority of the cost, though the person may still contribute from their income such as pension.

The property question:

The person's home is usually included in the financial assessment unless a qualifying person still lives there, such as a spouse or civil partner, a relative aged 60 or over, a relative who is incapacitated, or a child under 18. If none of those exemptions apply and the person moves permanently into a care home, the property value is counted as capital.

The local authority can also place a charge on the property to recover care costs, or offer a deferred payment agreement, which effectively works like a loan secured against the home, repayable from the estate after death.

How quickly fees can erode an estate:

Care home fees in England typically range from around £800 to £1,200 per week for a standard residential home, and significantly more for nursing care or specialist dementia care. At those rates, a self-funder can spend £40,000 to £60,000 or more per year. It is not unusual for someone to spend several years in a care home, meaning that a very substantial proportion of their estate, sometimes the entirety of it, can be consumed by fees before they pass away.

Deprivation of assets:

One issue that catches people out is the deprivation of assets rule. If a person gives away assets, including transferring property, with the intention of reducing their means so that the local authority will pay for their care, the local authority can treat them as still possessing those assets. This is a question of intention, and the timing and circumstances of the transfer will be scrutinised. There is no fixed time limit on how far back a local authority can look.

Practical considerations:

There are legitimate planning steps that people can take, but they need to be considered carefully and usually well in advance of any care needs arising. These include things like appropriate use of trusts, obtaining proper valuations, checking whether continuing healthcare funding from the NHS may apply (which is free and not means-tested), and ensuring the financial assessment has been carried out correctly.

It is also worth noting that errors in financial assessments are not uncommon, and people do sometimes pay more than they should. Checking the assessment carefully, particularly the treatment of property and the identification of any disregarded capital, is always sensible.

In short, care home fees are one of the single biggest factors that can reduce an inheritance, and planning ahead where possible can make a meaningful difference to what is left in the estate.