What could a government cap on care fees mean for you?

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At a glance

  • The government is now proposing to put an £86,000 cap on care fees from October 2025.
  • The aim is to help make care fees planning easier and reduce the amount that some individuals need to pay for social care.
  • Not all care costs will be covered, so speaking to an adviser well before you or a loved one need care will help you make sense of the costs you may face, and plan for them.

The government announced it was making changes to the social care system in England back in 2021. These included a social care cap: limiting the cost of personal care to £86,000 per person over a lifetime. The changes were due to come in from October 2023, but this has now been pushed back to 2025. Until then, the current funding rules still apply.

Anything can happen before then. But it’s worth knowing what this might mean for you if it goes ahead, how the new cap will work and what you can do to plan.

What are the two key changes of the social care proposal?

These are the key changes the government is proposing from October 2025:

•    Introduce an £86,000 ‘cap’ on how much an individual has to spend on personal care costs over their lifetime.

•    Increase the upper and lower capital thresholds for means-tested social care funding to £20,000 and £100,000.

At present the social care upper limit is £23,250 and the lower limit is £14,250 in England. If your assets are above £23,250 and you don’t qualify for NHS support, you will have to pay for your care fees in full. If your assets are below £14,250, then the local authority will pay for your care costs. Any income you do have will be used to pay part of your care fees.

If your assets fall between the two, you may be eligible for some help from the state.

What is the cap on social care fees?

The cap, sometimes called the ‘social care’ cap, pledges to limit the amount of money that people need to find for long-term care. This sounds like good news. At first glance, it looks pretty straightforward; once you’ve spent £86,000 of your own money, your care costs will be picked up by your local authority.

However, the devil is in the detail. And the reality is that some people will still have to pay much more than £86,000 towards their care.

This is primarily because not all of the money you spend on care will count towards the cap.

What costs are excluded from the social care cap?

The care cap only applies to money you spend on personal care. That’s help with daily activities such as washing, feeding, medications, getting dressed and so on. This includes care at home, or in a residential care home.

The costs of a room in a care home, and the bills for food, cleaning and heating, don’t count towards the cap. These so-called ‘hotel costs’ account for a sizeable portion of a care home bill.

So only some of your care home costs will ever count towards your social care cap.

Why are the changes important?

The cost of residential care has rocketed by 11% to just over £46,000 per year – and that’s without nursing costs1. In cities such as London and Brighton, the annual figure can be over £50,0001.

The changes are aimed at reducing the high cost of paying for social care, and hopefully reducing the need for people to sell their homes to fund care.

But because of the way the care fees cap is calculated, many people will still pay tens or even hundreds of thousands of pounds more for their care to cover the hotel costs, or if the care home they choose costs more than the local authority is prepared to pay.

The changes can seem like they’re complicating the already complicated care system, rather than simplifying it. And of course, they may not become law at all. A financial adviser can help you and your family make sense of these proposed changes and decide on the best course of action for you, should you ever need to arrange social care.

How does the system currently work?

At the moment, there’s no limit to the amount that someone can pay for social care during their lifetime. Because of this, many families find that their assets are swallowed up by care-home costs.

State-funded social care is means-tested. Under today’s rules, only those with assets under £23,250 qualify for financial support from their local authority.

If the assets are over £23,250, and you don’t qualify for nursing support, you will have to pay the full cost of your care. If you’re being cared for in your own home, your home isn’t counted as an asset. But your investments, savings, and other assets are.

How would the social care cap work if it’s approved?

Whether or not the social cap goes ahead, the poorest will continue to receive more help with care costs. But for most people, the reality is that someone who isn’t eligible for local-authority help (because they have assets above the thresholds) will be paying the full cost of their later-life care for many years.

Since the local authority will only pay a proportion of your total social care costs, it may take some years for you to hit the £86,000 ceiling. Until then, you’ll be picking up all your care costs yourself, as a ‘self-funder’.

Even if you do reach the £86,000 cap, you will still need to fund the ‘hotel costs’ of ongoing social care.

It’s also important to note that your local authority will set the rate they’re willing to pay towards your social care once they’ve assessed you – and a local authority rate is always lower than that of someone who’s self-funding their care. If the care home you choose costs more than the local authority’s rate, you will need to pay the shortfall. And unfortunately, any top up you pay won’t count towards the cap.

What happens if I’m self-funding, and I reach the £86,000 care cap?

The good news is that under the proposed scheme, your local authority would very likely pay the personal care costs of your care. However, you’d still need to find the money for the ‘hotel costs’, and any top-up fees needed if the care home you choose costs more than the local authority’s set rate.

Should I still arrange a Local Authority means test if I’m self-funding?

Even as a self-funder, you should arrange for a Local Authority means test, if you or a loved one needs social care.

Whatever happens in October 2025, having the means test means that you’ve ‘set the meter running’. Your ability to pay for care and the amount you’ve paid will then be on the record. If you do reach the £86,000 ceiling, the amount you’ll need to pay yourself will reduce significantly.

The test may also mean you have access to other assessments and state assistance.

Should I prepare for the possibility of a social care cap?

In principle, the proposal to help families fund social care is a positive move. Even if the proposals are approved in October 2025, the social care cap isn’t a magic money tree. There are so many limitations and caveats built into the proposal at present, that it makes even more sense to plan as though the proposal won’t go ahead. That way you can look forward to the future you imagine, and wherever life takes you, in later life.

What you can do to plan ahead

Nobody likes to think about long-term care, any more than they like to think about paying for it. Of course, no-one can predict whether or not you’ll need social care as you get older – or how your needs will change.

But talking to your financial adviser and building care costs into your retirement planning early on can help you work out the real costs involved, and how to cover them as tax-efficiently as possible.

Moving into a care home is a big challenge for families. The very last thing anybody wants to be worrying about is money.

As always, we’re here to answer any questions and help you make sense of the proposals, and how they might affect you. Do get in touch with us now if you’d like to talk through the issues.

Source

1UK Care Guide – Accessed July 2023. The data is based on a survey of care homes between December 2022 and February 2023. Each care home had a minimum of 25 beds. The costs provided are for those residents privately funding all their care.

SJP Approved 02/08/2023

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