Paying for long-term care and inheritance planning in UK

Many of us find it hard to think about ourselves, or our parents needing help as we get older. And when we do start to think about it – perhaps in our 50s or 60s – the cost implications can make us wince.

The high cost of social care can quickly swallow up any inheritance that we planned to pass on to our children or grandchildren. In 2023, the average cost of residential care in the UK rose to £46,000 per year, rising to over £50,000 in certain parts of the country, or for specialist nursing or dementia care.

It’s also important to remember that the proposed £86,000 care-fees cap, which the UK government is planning to introduce in England in October 2025, isn’t a silver bullet either. The proposal does increase the lower and upper thresholds for social care funding, but it only caps some care costs, not all. Read more here about what the government cap on care fees mean for you.

But with careful forward planning, you can mitigate the impact that care fees can have on your inheritance.

How long might I need to pay for care?

None of us can see into the future but, in terms of planning ahead – it could be longer than you think. More and more of us can expect to live to 100, and the chances of getting to the end of a 100-year life without needing care of some form is unlikely.

The longer you live, the more the bill goes up and the less money there is for the family.

Not only that but the longer you live, the longer your children will wait before coming into an inheritance. To counteract this, some older people are now choosing to skip a generation by passing their wealth directly to grandchildren.

A multi-generational approach to financial advice keeps money flowing through families in the most tax-efficient way.

Read more:

Money HQ | How to mitigate your Inheritance Tax bill

When should I make a long-term care plan?

Most people want to leave a meaningful legacy to their children and it’s a key part of later life planning. But it’s important to get a reality check at an earlier age.

Discussing and planning for a range of scenarios at an earlier stage in life, when children are still living at home for example, makes good sense.

Talking to your family about long-term care

The first step is to start talking to your children about your plans and your wishes for later life care. This can be easier said than done – conversations about growing old, and dying, can be difficult for all sides. Emotions can run high too, especially between

siblings, and a lot of feelings need to be considered. A financial adviser who’s one step removed can bring the parties together, find common ground and consensus – and help take the heat out of those discussions.

Having these conversations early means everybody knows what to do, and is comfortable with it, should long-term care become a reality.

Will I need a Power of Attorney if I need long-term care?

More often than we’d like, we hear from client families who suddenly find they need to pay bills or arrange social care on behalf of their parents – but they can’t do so because they don’t have an appropriate Power of Attorney (POA) in place.

A POA means that if you lose mental capacity and can no longer look after your financial affairs or your own health and welfare, someone you trust can act on your behalf. Depending on where you live in the UK, you might need a Lasting, Enduring or Continuing POA.

Making sure there’s a Power of attorney in place is one of the first things to get sorted when you’re starting your financial plan. Not having a POA can add needless distress and pointless delay at a difficult time.

Read more:

Money HQ | What’s changing and what’s not – your new tax year checklist

Can I avoid paying for care by giving away my assets?

The Government’s means-tested threshold sets your eligibility for State help with social care costs. If you have assets of more than £23,250 in England and Northern Ireland, £32,750 in Scotland or £50,000 in Wales, your local authority won’t normally step in to help. Which leads some people to think that, if they can give some assets away to other family members, they can duck below the means-tested threshold.

Although this sounds tempting, it comes with a large health warning labelled ‘Deprivation of Assets.’

Deprivation of Assets is when someone gives assets to other family members in an attempt to reduce their level of wealth below the means-tested threshold so they can apply for local-authority funding.

If the authorities spot that you’ve done this, they’ll treat the assets as if you still hold them yourself. You’ll be liable for your own care fees, and worse – you may have given away the very assets that you would have used to fund care. It’s a lose-lose situation.

Reducing your assets by gifting money

Gifting can reduce your estate legitimately. However, you must be clear what your intention is with the gift. If not, it could be considered as deliberate ‘Deprivation of Assets.’ If you’re gifting money to help another family member afford a house deposit, this is more likely to be seen as a legitimate gift, depending on when the gift is made.

Always keep a written record of gifts that you make, when they were made and the intention of the gift, just in case it is ever queried by the local authority. And speak to a financial adviser before you make any gifts, just to be sure that you aren’t making a costly mistake that you can’t reverse.

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There are two considerations to keep front of mind when deciding to gift, too. Firstly, whether you might need that capital back to pay for long-term care. And secondly, if you do qualify for social care assistance from your local authority, you may limit the care homes options available to you, and they may not be ones you would have chosen.

Ben Stark is a chartered financial planner with over a decade of experience advising businesses and families. He is partnered with St. James's Place Wealth Management.