State Supported Equity Release Scheme
Each local authority has an equity release scheme in place to enable residents of care homes to fund part of their care fees by releasing capital from their former home. It is called the Deferred Payment Scheme.
Who can qualify for the scheme?
A person can only qualify for the scheme if he
- is about to permanently enter into, or is already permanently living in a care home, and
- has insufficient income and other assets, other than the value of his own home, to meet the cost of his care, and
- does not wish to sell his home or is unable to sell his home quickly enough to pay for his own care fees.
A person can also only qualify for an equity release scheme if their home is not treated as a disregarded asset. Their home would be treated as a disregarded asset:
- during the first 12 weeks of their permanent residence in the care home, or
- if their house is occupied by:
- their partner and/or
- a relative or family member who is either aged 60 or over, or under 16 and is a child the person is liable to maintain, or is incapacitated
What does insufficient income and other assets mean?
To qualify as having insufficient assets a person must have assets worth less than the means test limit (not including their own home).
If the person qualifies on the assets test, then all of their income would be taken into account, including tariff income, less the Personal Expense Allowance.
How does the equity release scheme work?
Once the local authority has carried out its financial assessment to see if a person qualifies, and their care needs are assessed as requiring permanent residence in a care home, the local authority will enter into a care contract with the care home. The local authority will then be responsible for paying all of the care fees to the care home.
The local authority will also enter into a separate contract with the person needing permanent care. This contract will be known as a deferred payments contract. Through it the person agrees to pass on all of their after tax income, less their weekly Personal Expense Allowance, to the local authority. In addition, he also agrees to repay any monies the local authority has to pay to the care home, over and above his income contribution, agreed in their contract with the care home.
Repayment of any additional monies paid by the local authority is secured through a charge on the resident's own home. The accumulated charges are repaid when the home is sold. No interest is added to the charges until 56 days after the person's death. In effect the local authority provides an interest free loan for the care fees payments over and above the person's available income until the home is sold or until 56 days after the person's death if earlier.
What if there is an existing mortgage on the home?
A deferred payments contract will not be granted unless the Local Authority is confident the mortgage can continue to be funded without affecting what the person must pay for the care fees. In reality mortgage payments would have to be paid by a third party or from the person's available capital.
What can the resident's home be used for?
If a person qualifies for a deferred payments contract with the Local Authority, they could:
- let the home, so treating it as an investment property
- let a person live there who does not make the home a disregarded asset (e.g. a friend who provided informal care for the person before they had to move into the care home)
- leave it empty so hopefully it appreciates before it has to be sold after the person dies.
Each of these options can have major taxation, insurance and other financial consequences, and professional advice should always be taken.
Can Attendance Allowance be claimed?
Attendance allowance can still be claimed as though a private contract between the person and the care home existed.
What if the person wants a better quality home than the Local Authority is prepared to pay for?
The Local Authority will pay fees in excess of its baseline level, if and only if it believes it can be certain of obtaining the difference in top ups throughout the lifetime of the person from either:
- a third party and/or
- from the person himself.
It should be noted the person would only have the capital of up to the upper means test limit available, other than the home value, unless it is possible to obtain capital from a disregarded asset.
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