How will the new cap on care fees affect me?

Cute young daughter embracing her mother with love, sitting on sofa at home

Ask the expert at Smith & Pinching about the cap on care fees due to be introduced in 2023 - Credit: Getty Images/iStockphoto

I am trying to decide if I can give money to my daughter to help her with buying her new house. I have a reasonable amount of savings and investments – worth about £400,000 – but have always held back from giving it away in case I need to spend money on care as I grow older. I’ve read that care fees are to be limited to just £86,000 in total so does that mean I can start to give money away?

Matthew Hinchliffe, Independent Financial Adviser with Smith & Pinching 

Matthew Hinchliffe, Independent Financial Adviser with Smith & Pinching - Credit: Smith & Pinching

Matthew Hinchliffe of Smith & Pinching responds:

You are correct that the government intends to introduce a cap on the amount of care fees you pay in your lifetime, starting in October 2023. However, the amount you spend on your full care package is likely to be way beyond the £86,000 cap before it kicks in.

The key point to know is that only the element of your care package that relates to your personal care – dressing, eating, bathing, etc. – will count towards the cap. Other elements such as your accommodation, food and other services offered by a care home won’t be taken into account.

Care fees incurred either in residential care or at home will count towards the cap, but any expenditure on care before the new rules start in October 2023 won’t be included. In addition, any fees paid by anyone else won’t count and, if you qualify for Local Authority Support, any fees for care paid by them won’t count either.

Having said that, it is possible to manage the erosion of your savings and investments through paying care fees. There are, for example, special annuities that can be bought as you go into care that will provide a top-up to income to cover the cost of care for life, and so ringfence how much you will pay in the long term. There may also be flexibility within any pension package you may have or through your investments to manage the income levels you will need to pay for care.

I think you would find it helpful to meet with an independent financial adviser to look at the complete picture of your finances so that you can understand the implications of making significant gifts at this stage. You may indeed be able to help your daughter without compromising your future financial security, but this is where proper planning will make all the difference.

The new legislation applies only to care fees in England. The other home nations have their own rules.

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Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

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