Paying for Nursing and Residential Care

Part 2 of the Kleinworth Benson

This second article by Derek Wright of Kleinwort Benson is based on the results of their unique Survey amongst those who look after someone in a care home. This article looks at how assessments under the Community Care Act 1993 work in practice and what plans are made to gift assets pre-entry to a care home. Personal tax issues are also reviewed to see whether all the available personal reliefs and allowances are being claimed. The final article in this series will then look at the financial concerns of those caring for someone in a home and the solutions available in the market to meet private care costs.

The Community Care Act 1993 (CCA) had twin aims. Firstly, moving the cost of providing care from Central to Local Government and secondly to control entry into a home by an assessment procedure. The assessment is designed to identify each individual's care needs and an appraisal of their financial circumstances. Before the 1993 Act money available to meet fees of care home clients was an unlimited source of funds from the DSS, so all those entering a DSS approved home could get their fees paid irrespective of the total cost to the tax payer. The population demographics show a substantial increase in those aged over 85 years and this could well have been a factor that encouraged the Government to introduce the CCA. Local Authorities now have to budget in a way there has never been a budget before and many found themselves in difficulty that led them to seek legal remedies. An example is the recent Sefton case that has been reported in Elderly Client Adviser on several occasions.

But how many people have been seeking an assessment under the CCA? The results from the Survey (see table 1) show clearly that less than half of those entering a care home sought such an assessment. Under the CCA each person must ask for an assessment whereas before 1993, entering a DSS approved home triggered financial assistance. When an assessment was carried out many achieved the assurance of Local Authority funding (see table 2). This is the long term guarantee that fees will be paid once an individual's own funds have run out. It is therefore essential that professional advisors ensure assessments are carried out even though their clients may have current assets exceeding £16,000 so that the long term commitment from the Local Authority to pay fees is achieved wherever possible.

In order to obtain Local Authority funding, a number of commentators speculated that people were considering gifting assets or indeed spending their funds prior to possible entry into a care home. Did such gifts actually occur in practice? (see table 3).

This shows that only 3% made gifts of property or cash pre-entry to the care home. In 93% of cases the house was sold after entering the care home to pay for the fees. For those with assets, in addition to their home, gifts were made for inheritance tax purposes (see table 4). Here we see tax planning did take place and there is an awareness that more could be done. The same cannot be said for income and capital gains tax planning (see table 5).

In regard to income tax only one third of those responding completed a tax return. This is a low percentage given that most people would have some income suffering tax at source. This tax could be reclaimed by submitting a tax return/repayment claim. Substantial amounts of tax are apparently not being reclaimed from the Inland Revenue. As every penny counts to meet nursing home costs, this reflects a lack of appreciation of the need to complete appropriate returns and also take steps to claim capital gains tax allowances where possible.

Given that personal and health concerns would nearly always dominate financial ones it is perhaps not surprising that tax issues took a low profile. Nevertheless, the message from this element of the Survey is that professional help is needed in ensuring CCA assessments and tax issues have a broader appreciation amongst those with someone in care.

The final article will review and prioritise the financial concerns of the Survey respondents, look at the financial solutions available and see what solution comes closest to meeting the needs of those paying for private care.

Derek Wright, Assistant Director, Kleinworth Benson Private Bank
Copyright Kleinwort Benson Private Bank

Table 1

Community Care Assessment Carried Out? %

Yes 44.0

No 27.4

Don't Know 26.6

Total Replies 100.0

Table 2

Assured of Local authority Funding %

Yes, From lst day 42.5

Yes, When Funds Run/Ran Out 38.7

No 5.0