SPENDING THE WINDFALL
To read the headlines you would think that the moment an elderly person goes into a care home they are forced to sell their own house or flat to pay the costs of up to £1000 a week or more. It is not true. No-one – I repeat no-one – can be forced to sell their home to pay for their care. Many of course are led to believe they must, and some choose to do so, but no-one has to.
It is sad that as the details of the Government plan to cap care costs is debated the phrase 'people have to sell their home to pay for care' is being used - ignorantly - on both sides.
The Government made the true position clear when it launched its plan in September to cap the cost of care. It reminded us that “the existing service allowing people in need of residential care to defer payment of their care home fees…means that people have the flexibility to avoid selling their home within their lifetime”.
This deferred payment agreement is law only in England but in the other countries of the UK similar arrangements can be made. In England anyone with capital (apart from the value of their home) of £23,250 or less can apply for it. The care home bill ticks up while they are alive and is paid from their estate after they die. Interest is added and some local authorities add fees too. The people who eventually pay the bill are the heirs through a reduced inheritance.
A deferred payment arrangement may not be necessary. The value of the home is not counted at all for the care home means-test if a spouse or partner lives there. It is also ignored completely if a relative – on a broad definition – who is over 60 lives there. There is also discretion to ignore the value if a carer or a younger financially dependent relative lives there. As a result, the value of many homes is ignored and the council pays for the care.
It is also possible that the NHS will pay the whole cost without a means-test. It is called NHS Continuing Healthcare and applies if the person is discharged from hospital into residential care and their primary reason for needing that is medical. In Scotland it is different and called Hospital Based Complex Clinical Care. It is hard to make the NHS pay and may require legal help. But the law is there and it can be done.
Sell your home
But why not sell your home anyway and use its value to buy yourself the best care in the nicest place that you can afford? The value of your home is yours and any decent heirs would rather you used the money to make yourself as comfortable and happy as you can be in your final years. The average time in a care home for people over pension age is around two and a half years so there may still be plenty of money left for them.
People say to me ‘I worked hard for that house, paid the mortgage for over 40 years. Why should I lose it because I need care in my very old age?’
Legally of course it is your money. But if you had a mortgage 40 years or more ago then that was subsidised by other taxpayers. In the 1970s you could set mortgage interest off against your income tax up to any amount and at your highest tax rate. From 1983 it was called MIRAS and restricted to smaller loans and basic rate tax. That was abolished in 2000 saving other taxpayers £1.4 billion a year. If your mortgages have included years before 2000 then some of your mortgage interest was paid by other taxpayers.
As for working hard, most of the value of your home is a windfall caused by house prices rising faster than any other inflation measure. From 1981 to 2021 prices measured by the Consumer Prices Index have trebled and wages have risen almost twice as fast. But house prices have soared tenfold. The Nationwide house price index shows the average UK home was worth £265,700 in June 2021. Forty years ago it was worth less than a tenth as much – £26,381.
If house values had risen with consumer prices your home should be worth £80,500 and if they had gone up with pay it would be worth around £150,000. Either way you have a huge windfall gain – up to £185,000 compared with prices – for which you did no work at all. It was created by society failing to build enough homes, controlling interest rates, and subsidising mortgages.
So do not be resentful or afraid to use that tax-subsidised windfall gain to give yourself the best last few years you can. Your kids will survive without it.
This blogpost is adapted from an article which first appeared in The Daily Telegraph on 6 November 2021 and a few days before online.
25 November 2021