Carefree care fee planning?

SallyG · 19 May 2017 at 4:08PM

http://www.bbc.co.uk/news/business-39977559

One way to avoid your property wealth being consumed by care bills might be to take equity out of your house ahead of time.
With equity withdrawal, an insurance company will give you a portion of the value of your house now, charge interest on that amount until you die and take the money you owe them out of the eventual sale proceeds of the house.
To take the above example - an insurance company lends you £200,000 against your house aged 65, charges 5% interest a year until your eventual death at 90. You now owe them £200,000 plus 25 years' interest at 5%, which equals £359,000.
If your house price stays flat, that only leaves £141,000 left in equity. If, as the government proposes, you are allowed to keep £100,000, that means your liability or your own social care is only £41,000 rather than £400,000.

Have they thought it through?

dunstonh · 19 May 2017 at 4:37PM

Have they thought it through?

yes because suddenly you have a great big chunk of capital in your bank account. You haven't changed the net position of your assets.

NotSkint · 19 May 2017 at 4:40PM

Wouldn't the £200,000 equity release be classed as an asset?
Personally I am in favour of the policy; my in-law paid for her own residential care for two years before passing. If the assets are there then surely they should be used. Why should the tax payer pay.
Some see it as a hidden inheritance tax but I quite like the idea myself.

Linton · 19 May 2017 at 4:55PM

Some major snags with your little scheme:
- You wont get a rolled-up lifetime mortgage for more than about 30% of the value of your house at 65
- Lifetime mortgage interest rates are significantly higher than those for normal pre-retirement repayment or interest only mortgages. There are only a small number of providers.
- I dont agree with your repayment calculations. 25 years at 5% compound interest amounts to a factor of 3.39 giving the repayment at death at 90 as £678000. Even if the mortgage was on an interest only basis the cost of the interest alone would be 25 X 0.05 X £200K=£250K
- The chances are that any care costs will be far less than the interest paid.
- What do you do with the £200K? You cant keep it as it would put you well above the £100K limit.
- Taking out a lifetime mortgage may significantly reduce your options well before you need care.

dunstonh · 19 May 2017 at 5:16PM

- What do you do with the £200K? You cant keep it as it would put you well above the £100K limit.

And you can't gift it to someone else as that is deprivation of assets.

Keep_pedalling · 19 May 2017 at 5:17PM

Well I suppose you could always blow the released equity on living it up for a few years, but it would be a hell of a come down when you move into a LA funded care home instead of being able to afford a better choice.

AlanP_2 · 19 May 2017 at 5:17PM

I don't think it is the OPs little scheme, rather a direct quote from the BBC article which, in the main, posed various scenarios about how the new "rules" could be interpreted given the limited information so far.

SallyG · 19 May 2017 at 5:18PM

You're right - not my scheme - I should have put quotation marks around it - it is a quote from the BBC article - every now and again I try to discover whether some financial guru claims are actually true ........

Browntoa · 19 May 2017 at 5:20PM

I'd love to see figures for the number of people whos house actually gets swallowed up in care fees

I think the fear outweighs the reality

And I'd rather live in a decent care home personally

Cacran · 19 May 2017 at 7:18PM

I am feeling a bit confused. As it is now, if you go into a home and have more than a certain amount in savings, you have to pay for your care, if you have a bit less in savings, you pay a reduced amount. Am I right about that?
If you have a property and the co owner is alive and living in it, they don't take your house from you, is that right?
If you live in the house alone then they will take your house. Is that right?
How do new proposals affect things. I think I have understood, but not sure.

Mojisola · 19 May 2017 at 7:38PM

Cacran wrote: »

I am feeling a bit confused.

As it is now, if you go into a home and have more than a certain amount in savings, you have to pay for your care, if you have a bit less in savings, you pay a reduced amount. Am I right about that?

If you have a property and the co owner is alive and living in it, they don't take your house from you, is that right?

If you live in the house alone then they will take your house. Is that right?

No-one takes your home! If you are assessed as having more than the capital allowance, you have a contract with the care home and have to pay the bill - if your income, benefits and savings don't cover the bill, you may have to sell your house.

If you need residential care and a spouse (or certain other people) live in the home, its value is ignored.

If you are funded by the council, you contribute your pension(s) towards the costs. You are allowed to keep just over £20 a week for incidental expenses.

Carefree care fee planning?

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