Funding Long-Term Care: Options and Planning Strategies

Long-term care is one of the largest financial risks facing individuals in later life, yet it remains chronically underplanned for. The care system in England (and with different rules in Scotland) is complex, the costs are substantial and open-ended, and the interaction between personal assets, means-testing thresholds, and available funding mechanisms is not well understood. For HNW individuals, the means-testing system typically means that care costs must be met personally — making planning ahead not just advisable but financially significant.

This guide sets out the principal options for funding long-term care, from pre-funded insurance products to property-based solutions and state-funded entitlements. It is a general introduction; individual care planning requires specialist regulated advice from a qualified financial planner with care fee specialist credentials, and where appropriate, specialist legal advice.

The Scale of the Problem

The average annual cost of residential care in England as at 2026 is approximately £38,000–£45,000 for a care home and £55,000–£80,000 for a nursing home with specialist care needs. These figures vary widely by region (substantially higher in London and the South East) and by the level of care required (dementia care and specialist nursing carry the highest costs).

A person entering care at age 82 — close to the average age of care entry — and living in care for four years (close to the average duration for residential care) faces total costs of £150,000–£250,000. Longer stays, specialist care, or early entry substantially increases this figure. The open-ended nature of the liability — care costs continue until death, with no cap on duration — is what makes it a genuine financial planning risk.

The government's proposed care cost cap (the "£86,000 cap" derived from the Dilnot Commission reforms and legislated under the Care Act 2014) was repeatedly delayed and was then formally scrapped by the government in July 2024 — the adult social care charging reforms that were due to commence in October 2025 were cancelled. As at 2026 there is no care cost cap in force, and none is planned. Do not factor a care cap into planning.

Means-Testing in England

In England, the local authority will assess both your care needs (a care needs assessment) and your financial means (a financial assessment). The current thresholds for England are:

• Above £23,250 in capital assets: You are self-funding — responsible for meeting the full cost of your care.
• Between £14,250 and £23,250: You contribute on a sliding scale.
• Below £14,250: The local authority funds care (subject to contributing your income, including pension and benefits).

Your main home is disregarded in the financial assessment for as long as a spouse, civil partner, dependent relative, or certain other qualifying people live there. Once the home is empty (typically after the individual moves permanently into care and their spouse has died or also moved to care), it is counted as an asset.

For an individual with a home worth £600,000, savings of £200,000, and an investment portfolio, the prospect of the local authority meeting any care costs is remote. This is the planning context for most HNW individuals.

Scottish Rules: Free Personal Care

The position in Scotland is materially different from England. Scotland provides Free Personal Care (FPC) to all residents who meet the care needs assessment, regardless of their financial assets. Free personal care provides a weekly contribution towards assessed personal care costs (£254.60 per week in 2025/26 for personal care; additional for nursing care). This does not cover the full cost of care, but it provides a meaningful contribution that is not means-tested.

Scotland's approach substantially reduces the financial risk of care costs for Scottish residents compared with England. However, it does not eliminate the risk entirely — the non-personal care element of residential care costs (accommodation, meals, laundry) is still means-tested and charged.

Wales and Northern Ireland have their own rules that differ from both England and Scotland. For UK residents who have lived in, or are planning to move to, different parts of the UK, the national variations are a planning consideration.

Option 1: Care Fee Annuities (Immediate Needs Annuities)

A care fee annuity (also called an Immediate Needs Annuity or INA) is an insurance product purchased at the point of care entry, using a capital sum, that pays a guaranteed tax-free income directly to the care provider for life. The care provider is typically a registered care home or nursing home.

Key features:

• The income paid is tax-free when paid directly to a registered care provider (ITTOIA 2005, s.725).
• The income is guaranteed for life regardless of how long the individual lives (providing longevity protection — critical given the open-ended nature of care costs).
• The premium is based on the individual's age, health, and the level of care required at the time of purchase. Individuals with poor health or high care needs at inception actually receive better annuity rates (similar to enhanced annuities) because their expected claim duration is shorter.
• Some INAs include inflation protection (typically linked to CPI) to partially offset future care cost increases.
• Many products allow for a capital protection element — if the insured dies shortly after inception, a proportion of the premium is returned.

The main drawback of INAs: the capital used to purchase the annuity is permanently committed. If the care recipient subsequently leaves care (through recovery or other change in circumstances), the annuity continues to pay but the capital is not returned. A care fee annuity is an appropriate solution where care needs are established and likely to be long-term, not where care is uncertain.

Specialist providers include Just Group, Partnership (now part of Just Group), and Legal & General. INAs are a regulated product and must be arranged through a specialist adviser with Care Qualification (CQ) credentials.

Option 2: Pre-Funded Long-Term Care Insurance

Pre-funded LTC insurance policies — taken out years before care is needed — are designed to accumulate cover for future care costs at a more manageable premium cost than buying an INA at the point of need.

The UK pre-funded LTC insurance market has contracted substantially since the early 2000s, following the withdrawal of major insurers from the market. As at 2026, standalone pre-funded LTC insurance products are not widely available in the UK. The market is dominated by combination products — whole-of-life policies or investment bonds with LTC benefit riders — rather than pure LTC insurance.

Where pre-funded products are available:

• They typically pay a daily benefit (a fixed sum per day of care, which can be index-linked) on meeting a benefit trigger — typically inability to perform a defined number of Activities of Daily Living (ADLs: washing, dressing, eating, mobility, continence, toileting).
• Premiums are reviewable, and insurers have historically increased premiums substantially over time as claims experience has emerged.
• Underwriting is strict; individuals who purchase in later life (over 60) may find cover unavailable or unaffordable.

For HNW individuals, the primary role of pre-funded products — where available — is to provide some income at the point of care entry, rather than to fund the full cost. A policy paying £800 per week in care benefit represents a meaningful contribution to a £1,200/week care home bill.

Option 3: Investment Bonds for Care Drawdown

An investment bond — an offshore or onshore insurance-based investment wrapper — can be used to earmark capital for future care funding while retaining flexibility. The capital remains invested (and accessible) until care is needed; withdrawals of up to 5% of the original investment per year are not subject to income tax at the time of withdrawal (under the "chargeable event" rules, tax is deferred to maturity or surrender).

This is not a dedicated care product; it is a general investment vehicle being used for care cost planning purposes. The advantages:

• Capital is accessible; if care is not needed, the capital remains available for other purposes or for the estate.
• The tax-deferred withdrawal mechanism can be useful for meeting care costs if the individual's investment is subject to income tax management.
• The bond does not disappear on use like an INA — residual capital forms part of the estate.

The disadvantages:

• There is no longevity protection — if care lasts 20 years, the bond may be exhausted while care costs continue.
• The capital is not "ring-fenced" in a regulatory sense; it could be deployed for other purposes.
• Investment returns are not guaranteed and can fall as well as rise.

Investment bonds are frequently used alongside INAs: the bond provides a flexible capital reserve in the early years of care; an INA provides the guaranteed-for-life income floor.

Option 4: Deferred Payment Agreements

A Deferred Payment Agreement (DPA) is an arrangement with the local authority under which the value of your property is used as security for deferred care costs. The local authority pays for care as if you were a self-funder, and the debt (plus interest and an administration charge) accumulates as a charge against the property. The debt is repaid when the property is eventually sold — typically after death.

DPAs allow individuals to remain in care without selling the family home immediately. They are available as a right in England (since the Care Act 2014) to those who meet the eligibility criteria (primarily, that their capital excluding the home is below £23,250).

For HNW individuals with substantial liquid assets, DPAs are typically not available — the means test would show sufficient capital to self-fund. DPAs are most relevant where an individual's wealth is concentrated in property and cash assets are relatively modest.

Interest is charged on the deferred amount (the current maximum rate is set by the local authority, typically at around the Bank of England base rate plus a margin). The accumulation of interest over several years can be significant.

Option 5: Equity Release for Care Funding

Equity release allows older homeowners to release a cash lump sum or drawdown facility from the value of their property while continuing to live in it. Lifetime mortgages (the most common form) involve a loan against the property with interest rolled up rather than paid monthly; the loan and accumulated interest are repaid from the property sale proceeds on death or move to permanent care.

Equity release can be used to fund care where:

• The individual needs to fund in-home or part-time care before needing full residential care.
• The individual needs capital for a care fee annuity purchase and the only available capital is equity in the home.
• The individual wishes to fund care without accessing investment portfolios.

Equity release is a regulated product subject to FCA oversight, and must be arranged through an FCA-authorised adviser. The equity release market is overseen by the Equity Release Council, which sets voluntary standards including a "no negative equity" guarantee (the debt on repayment cannot exceed the property value).

Equity release used to fund care has specific implications for means-testing (the released cash may be counted as an asset) and for estate planning. Specialist legal and financial advice is important.

Option 6: NHS Continuing Healthcare

NHS Continuing Healthcare (CHC) is a package of ongoing care arranged and funded by the NHS (not the local authority), for individuals with a primary health need. Where CHC eligibility is established, all care costs — including accommodation — are fully funded by the NHS, regardless of the individual's financial means. This is not means-tested.

CHC eligibility requires a formal multidisciplinary assessment using the NHS Decision Support Tool. The assessment considers factors including cognitive impairment, behaviour, psychological needs, communication, mobility, nutrition, continence, skin integrity, and altered states of consciousness. The standard is high; CHC is intended for individuals with complex health needs, not primarily residential care needs.

A significant number of eligible individuals are never assessed for CHC, or are incorrectly assessed as ineligible by clinical commissioning groups seeking to contain costs. If you believe a family member in care may have a primary health need, requesting a CHC assessment — and potentially challenging a negative determination — is worth pursuing. Specialist CHC assessment advisers can assist with this process.

Planning Ahead: When to Start

Care planning is most effective when started before care is needed — ideally in your 50s or early 60s. By the time care is required, options are narrower and solutions more expensive. Key actions for proactive care planning:

1. Take specialist financial advice from an adviser with LTC specialist qualifications (the Society of Later Life Advisers, SOLLA, maintains an accredited member directory).
2. Review your estate plan in the context of care cost risk — consider trust structures, gifting strategies, and the interaction with means-testing.
3. Consider LPA (Lasting Power of Attorney) for property and financial affairs — essential if care is needed and you cannot manage your own affairs.
4. Understand the NHS CHC process and ensure it is properly assessed if needs develop.
5. For Scottish residents, understand the Free Personal Care entitlements and how they interact with your assets.

How Global Investments Can Help

Global Investments works with clients approaching and in later life whose care planning intersects with international assets, complex estate structures, and multi-jurisdictional financial arrangements. Long-term care planning in the UK involves specialist interaction between financial planning, estate law, tax, and regulatory assessment — areas where the right team of advisers makes a material difference to outcomes.

We can facilitate introductions to SOLLA-accredited specialist care fee advisers, coordinate care planning within wider estate and trust planning, and ensure that the financial implications of care entry are managed in the context of the broader wealth picture.

This guide is for general information only and does not constitute financial, tax, or legal advice. Care funding rules, means-testing thresholds, and NHS CHC assessment criteria are subject to change. The Scottish, Welsh, and Northern Irish rules differ materially from English rules; always verify the current position for the relevant jurisdiction. Values can fall; rules change; seek professional advice tailored to your circumstances.