Feature

posted 8 Dec 2004 in Volume 10 Issue 1

Income rules when paying for residential care

ALAN ROBINSON examines income rules and how they are applied when paying for residential care.

A person living in residential care who has capital in excess of £20,000 is required to pay the full cost of his or her care. Where the person has capital of less than that amount, then he or she may be entitled to a contribution towards the costs of care from the local authority (note: the figures quoted are for England only).

This contribution is determined by a means-test, which is contained in the National Assistance (Assessment of Resources) Regulations 1992 (SI No 2977), and is explained more comprehensively in the Charging for Residential Accommodation Guide (CRAG), which can be obtained from the Department of Health website www.dh.gov.uk

The means-test operates by ascertaining all the relevant income of the resident. As well as actual income, this includes income which the resident is deemed to receive from his or her capital (tariff income), resources which the regulations specifically define as income, and income which the regulations treat the resident as having even though they may not actually have it (notional income).

Some items of income are completely disregarded, and others are partially disregarded. From the total of non-disregarded income, the resident is allowed £18.10 a week as a personal-expenses allowance. The balance goes towards the amount paid by the local authority for the resident's care.

Only the income of the resident is taken into account. If he or she has a partner, then that partner's income is ignored for the purposes of the assessment.

It should be noted that these rules are those which (unless otherwise stated) apply to permanent residents. Rules for those temporarily resident may be different.

Actual income

Actual income is taken into account in full, unless the regulations provide for it specifically to be disregarded, either in whole or in part. The following items of income are taken into account in full:

Most social security benefits (see below for principal exceptions). This includes the care component of attendance allowance or disability living allowance, although note that the benefit will be stopped after the first 28 days unless the resident is entirely self-funding;
Annuity income and income from investment bonds. However, where the resident has bought an annuity with a loan secured on the home, the income is disregarded for as long as another annuitant (probably the spouse) still lives there;
Cash in lieu of concessionary coal. This is disregarded for a temporary resident;
Child support maintenance payments where the child lives with the resident under Part III of the National Assistance Act 1948;
Home office ex gratia incapacity allowances;
Certain items of income from disregarded capital. Income from capital is normally dealt with under the tariff-income rules (see below), and any actual income produced is disregarded. However, in certain cases where there is disregarded capital, any actual income from it is taken into account. For example, where capital is disregarded because it has been awarded for a personal injury and placed in trust, actual income from the trust is taken into account;
Income from an insurance policy, other than a mortgage protection policy;
Income from sub-letting part of the resident's property which is not living accommodation;
Occupational pensions;
Refunds of income tax;
Third-party payments made to meet higher fees. Where a local authority agrees to place a resident in a higher-price home on the grounds that there is a third party willing to contribute towards the higher fee, the payments made by the third party should be treated as the resident's income and should be taken into account in full.
A resident cannot use their own resources to pay for more expensive accommodation (i.e., act as their own third party);
Trust income, where there is an absolute entitlement to the income. Income is taken into account as actual income if it is received by the resident or could be paid to him or her on application. Where the trust is a discretionary one, income payments are disregarded. Where it is income from a trust where funds are derived from personal-injury compensation, or an annuity purchased as a consequence of personal injury, or payments made in consequence of a court order or agreement (including out-of-court settlements), they are disregarded, in whole or in part – see below;
War orphan's pension.

Actual income partially disregarded

Certain social security benefits are partially disregarded. War disablement pensions and war widows and widowers pensions each attract a £10 disregard, with a total of £10 if there is more than one.

There is a savings disregard following the introduction of the savings credit element of pension credit, calculated according to the following table.

Qualifying income - Disregard

A single person having:

Less than £79.60 = nil

£79.60 - £105.45 = £4.65 or actual savings credit or payable if less

Over £105.45 = £4.65

A couple having:

Less than £127.25 = nil

£127.25 - £160.95 = £6.95 or actual savings credit or payable if less

Over £160.95 = £6.95

There is a partial disregard in respect of an occupational pension, personal pension, or payment from a retirement annuity contract. Where a recipient of one of these payments has a spouse who does not live in the same care home, 50 per cent of the amount payable is disregarded, provided the resident passes at least that amount over to his or her spouse. Where less than 50 per cent is passed across, there is no disregard.

This only applies between spouses, but a local authority is advised by CRAG (Paragraph 8.024B) to consider using their discretionary powers to apply a similar rule to an unmarried couple. Where the spouse is legally entitled to receive a payment, possibly under a court order, this sum does not form part of the resident's income.

Income from sub-letting and from boarders can only be disregarded where the resident occupies part of the house which is being sub-let, and can therefore only apply to a temporary care-home resident. In such a case, the first £20 of income from a boarder (someone to whom at least one cooked meal a day is provided) is ignored, as is half the balance over £20.

Income from a mortgage-protection policy is disregarded insofar as it goes to meet housing costs.

Certain charitable or voluntary payments are disregarded. Irregular payments are ignored as income and treated as capital. Regular payments are fully disregarded where they are intended and used for items other than those covered by the accommodation charge; otherwise they attract a £20 disregard. The same rule applies to payments of income from a trust of personal-injury damages.

Earnings

Earnings are partially taken into account as income. Most care-home residents will not be receiving earnings, but the following rules apply in those cases where they do.

The assessment starts with gross earnings, and deducts the amount of tax and national insurance actually paid, along with half the contributions paid to an occupational pension. In the case of a self-employed earner, certain deductions are allowed as expenses of the business.

Of the balance, a sum of £20 is disregarded where any of the following circumstances apply, i.e. if the resident:

Receives income support or pension credit, which includes a disability or a carer's premium;
Is under 60 and receives disability living allowance (DLA) or severe disablement allowance;
Is over 60, qualified for DLA or severe disablement allowance immediately before s/he was 60, and has worked continuously since that date;
Has an invalid trike;
Is registered blind;
Has provided medical evidence of incapacity for work for a period of at least 28 weeks;
Has ceased to be entitled to attendance allowance or carer's allowance through being in a residential care home for at least 28 days;
Is a lone parent;
Receives carers allowance;
Receives a grant under Paragraph 2 of Schedule 2 to the NHS Act 1977.

Actual income fully disregarded

The following types of income are completely disregarded:

Attendance allowance or disability living allowance for a temporary resident;
Income support or pension credit paid to meet housing costs;
“Supporting people” payments;
Child support maintenance payments and child benefit, where the child is not accommodated with the resident;
Child tax credit;
Guardians allowance;
The Christmas bonus;
Payments from the Macfarlane Trusts, the Eileen Trust, The Fund, and the Independent Living Funds;
Council tax benefit;
The mobility component of DLA;
Dependency increases paid with certain non-means-tested benefits, provided at least the amount of the increase is paid to the dependent;
Income frozen abroad;
Income in kind;
Social fund payments;
Special payments for war widows and widowers in respect of service ending before 31 March 1973;
Work expenses paid by an employer, or to a volunteer;
Payments under the Adoption and Children Act 2002.

Tariff income from capital

Instead of taking into account the actual income which a person receives from the investment of their capital, the benefit system generally applies a tariff, under which income is calculated according to the capital. A sum is disregarded, and all capital above that level is deemed to bring in income at a specified rate. Tariff income is taken into account in full.

In the case of the local-authority means-test, the first £12,250 of capital is ignored, and the balance is deemed to attract income at the rate of £1 for every £250 above that level. So, if a resident has capital of £15,500, the first £12,250 is ignored and the remaining £3,250 is allocated income at £1 for every £250. The resident is therefore deemed to receive £13 a week from his or her capital.

Because different benefits have different levels of tariff income, other rules may also be applied in an individual case where the resident has income from specific benefits. For guarantee credit, there is no capital cut-off, so fluctuations in capital have no effect. For savings credit, the tariff applies from £6,000.

Notional income

A resident can be treated as having income which he or she does not actually receive. This is described as notional income and treated in the same way as actual income in the calculation (i.e., it is taken into account in full unless it is specifically disregarded). An example is a contribution made by a third party towards the cost of the accommodation. This does not apply to a contribution by a third party towards any arrears.

In other cases, it is for the local authority to satisfy themselves that the resident deprived themselves of income in order to reduce the charge payable for the accommodation. The motive for reducing the charge payable need not be the main motive for the deprivation, but must be a significant one. It is for the resident to prove that he or she no longer has the income, and for the local authority to prove the purpose for which the resident deprived him or herself of the income.

Income to which this applies includes income which is available to the resident on application (so long as regulations do not provide for it to be disregarded).

The following items of income are also ignored as notional income:

Income payable under a discretionary trust;
Income payable under a trust which has been created with the monies payable in respect of a personal injury (note this is notional, not actual, income. Actual income is dealt with in the same way as charitable and voluntary payments).

Income which is payable at the discretion of the payer is not notional income. Benefits which have not been claimed are usually taken into account as notional income, except for severe disablement allowance. Notional income is also assumed in respect of income from a personal pension plan, where the resident has not arranged to draw the maximum income from it, and income due but not paid (with the exceptions of income under a discretionary trust and income derived from a payment of damages for personal injury). Notional income is taken into account from the date on which it could have been expected to be obtained.

The calculation

The calculation is in most cases fairly simple. See Examples 1 & 2 below.

Example 1

Peter is a permanent resident in a care home. He has capital of £17,000 remaining from the sale of his house. His income consists of a state retirement pension of £79.60, and a guarantee credit of £25.85. When he entered care he was receiving lower rate attendance allowance of £39.35. However, this ceased after 28 days because he is not entirely self-funding.

None of his income falls to be disregarded. The amount he pays towards his care is therefore calculated as follows:

Pension - 79.60
Pension credit - 25.85
Tariff income from capital £17,000 - £12,250 = £4,750 @ £1 per £250 = 19.00
Total income - 124.45
Less personal expenses allowance - 18.10

Peter's contribution to his care - 106.35

Example 2

Mavis is a widow and is a permanent care-home resident. Her income consists of a state-retirement pension of £85.64 including a graduated pension, together with a private pension of £13.50 a week. She receives a guarantee credit of £6.31 and a savings credit of £11.72. Her daughter pays a top-up fee of £45 a week for the care home in which Mavis lives. She also receives the mobility component of DLA.

The mobility component is disregarded completely. She is entitled to the savings disregard of £4.65 (maximum allowable). Her daughter's contribution is fully taken into account, as are her other sources of income. Her total assessable income is calculated as follows:

State pension (taken into account in full) – 85.64
Private pension (taken into account in full) - 13.50
Pension credit (taken into account in full less savings credit) - 13.38
Daughter's contribution (taken into account in full) - 45.00
Mobility component (disregarded in full) - 0.00
Total assessable income - 157.52
Less personal expenses allowance - 18.10

Contribution payable by Mavis - 139.42

Conclusion

Since all income will affect the amount available to the resident, it is important that income is accurately stated, and that all potential disregards are notified. The different capital rules applying to this form of funding, pension credit and income support, can lead to confusion in terms of income from capital, and a close check of the financial assessment will often pay dividends. Finally, much energy is devoted to the notional capital rules where the resident has disposed of their home; applications of the notional income rules should also be carefully checked, especially where the resident's motive for deprivation may be in doubt.

Alan Robinson is a sole practitioner solicitor in private practice and also principal of Legal & Welfare Rights Training. He can be contacted via e-mail: robsols@gn.apc.org