As life expectancy continues to rise, the cost of residential and nursing care is becoming an increasingly important consideration for many individuals and families. Despite this, a common misconception remains that the state will meet the full cost of care if it is needed.

While local authorities may provide financial assistance in certain circumstances, support is subject to a means test.Many people will find that they exceed the eligibility thresholds. As a result, understanding how long-term care is funded and considering the potential impact on personal wealth has never been more important.

Understanding the Means Test

When assessing an individual's contribution towards care costs, local authorities consider both income and capital. However, not all assets are treated the same way, and certain assets may be disregarded as part of the assessment.

Examples of assets that may be excluded include:

• Capital below the lower threshold of £14,250.

• Personal possessions, including items such as artwork, jewellery and antiques.

• Funds held in trust that derive from a personal injury compensation payment.

• The surrender value of life assurance policies and certain annuities.

• The value of an individual's main residence in specific circumstances. For example, a property is generally disregarded for the first 12 weeks of permanent residential care and may continue to be disregarded where it remains occupied by a spouse, civil partner, partner or certain dependent relatives.

The rules surrounding financial assessments can be complex, making it essential to seek advice before making decisions that could affect future care planning.

The Risks of Deliberate Deprivation

One area that often causes confusion is the concept of deliberate deprivation of assets.

This occurs when an individual transfers, spends or restructures assets primarily to reduce the amount they may be required to contribute towards future care costs. If a local authority believes that this has happened, it can treat the individual as still owning the assets concerned, even if they no longer legally hold them.

Examples that may be investigated include:

• Gifting property to family members.

• Transferring assets into trust.

• Converting cash into assets that may be disregarded for means-testing purposes.

• Purchasing certain investment arrangements with the intention of reducing assessable capital.

• Significant or unusual expenditure that cannot be justified by normal lifestyle requirements, such as excessive holidays.

The key factor is intent. The local authority must consider whether avoiding care fees was a significant motivation behind the action taken. Timing is also therefore critical. Case law has established that where assets were transferred at a time when an individual was fit, healthy and had no reasonable expectation of requiring care, it may be difficult to argue that the transfer constituted deliberate deprivation. Local authorities take very different stances on this matter, with some areas notably more aggressive in pursuing cases involving the potential deprivation of assets than others.

The Consequences of Deliberate Deprivation

Where deliberate deprivation is established, the value of the transferred asset can be treated as ‘notional capital’ and included in the financial assessment. This can result in the individual being required to fund their own care despite no longer owning the asset.

In certain circumstances, local authorities may also seek to recover care costs from the recipient of a transferred asset. The rules are complex and depend on factors such as the timing of the transfer and when funding support was sought.

For this reason, any planning involving gifts, trusts or asset restructuring should be undertaken carefully and with appropriate professional advice.

Looking Ahead: Potential Reform of Social Care

The future of adult social care funding remains a significant political and public policy issue.

The Labour Party's 2024 manifesto outlined ambitions to reform the sector, including the introduction of a Fair Pay Agreement for adult social care workers and the development of a sustainable National Care Service. In January 2025, the Government announced a two-phase independent commission to examine the future of adult social care.

The first phase, expected to report during 2026, is intended to identify the most pressing challenges facing the sector and recommend medium-term improvements. The second phase, due to report by 2028, will focus on longer-term structural reform and the future direction of adult social care.

While the outcome of these proposals remains uncertain, they highlight growing recognition that long-term care funding is an issue that requires attention at both national and individual level.

Planning Ahead

With care costs continuing to rise and future reforms yet to be finalised, proactive planning is increasingly important. Understanding the funding rules, the treatment of assets and the potential consequences of asset transfers can help individuals make informed decisions and avoid unintended outcomes later in life.

For many families, early planning can provide greater flexibility, protect financial security and ensure that future care needs can be met as effectively as possible.

If you would like to discuss your situation in more detail, a member of the Financial Planning Team would be happy to arrange a discussion with you.