The prospect of needing residential or nursing care is one of the most significant — and most commonly ignored — financial planning challenges facing individuals in their 50s, 60s, and beyond. Care costs are high, they persist for years, and the state's contribution is limited and means-tested.
For high-net-worth individuals, the problem is particularly acute: they are unlikely to qualify for state funding (at least initially) and their assets make them fully self-funding — yet planning ahead can substantially reduce the risk of care costs eroding the estate they intend to pass to the next generation.
This guide covers the structure of the UK care funding system, the main financial products available, and the key considerations for individuals planning for their own care or for ageing parents. It also notes the important difference between English and Scottish rules, and touches on care planning for internationally mobile clients.
This is general information only. Funding rules, product availability, and tax treatment are subject to change. You should take specialist care funding advice and independent financial advice before making any decisions.
The Care Funding Gap: How the System Works in England
In England, care funding rules are set by the Care Act 2014 and the charging regulations made under it. As at 2026, the key thresholds are:
Capital threshold: if you have capital (savings, investments, property) above £23,250, you are expected to meet the full cost of your care from your own resources. If your capital falls below this threshold, the local authority will meet some or all of your care costs (subject to a means-tested assessment).
Property: if you require residential care, the value of your home is included in the means test unless a qualifying spouse or partner continues to live there (or in a limited number of other circumstances).
Care cost cap: a cap of £86,000 on the total amount any individual would have to spend on eligible personal care was legislated to commence in October 2025, but the government scrapped these charging reforms in July 2024 before they took effect. As at June 2026 there is no care cost cap in force in England and none is currently planned, so self-funders face potentially unlimited lifetime care costs. Clients should take current advice, as care funding reform remains a live policy debate.
The result is that a substantial proportion of people entering residential care in England will initially be fully self-funding. Annual residential care fees range from approximately £30,000-40,000 per year for a standard residential home, rising to £50,000-80,000 or more for specialist nursing care in London and the South East. These are broad averages; actual costs vary significantly by region and facility.
Scotland: Different Rules
Scotland has a distinct funding regime, partly because the Scottish Government introduced free personal care in 2002. Under the current Scottish system:
- Free personal care: individuals assessed as needing personal care (help with washing, dressing, eating, etc.) receive this free of charge, regardless of their financial circumstances.
- Free nursing care: nursing care inputs provided by a registered nurse are also met by the state.
- Accommodation costs: the cost of the residential facility itself (room, board, and non-care services) is means-tested in broadly the same way as in England.
Free personal care means that, for eligible individuals, a significant portion of residential care costs can be publicly funded in Scotland. However, accommodation costs still represent a substantial annual expenditure, and the interaction of the two streams (funded care, self-funded accommodation) requires careful planning.
The Scale of the Risk
Consider the following:
- Average duration of residential care: approximately 2-3 years, but with significant variation. Around 1 in 10 people spend more than 5 years in residential care.
- Annual cost of residential nursing care: £50,000-£80,000 in many parts of England.
- Cost over 5 years: £250,000-£400,000 at current prices, before inflation.
For couples, both partners may eventually need care — not necessarily simultaneously. The combined care cost exposure for a healthy couple in their 60s can be substantial.
Most people have not planned for this. Protection against care costs takes several forms, which we set out below.
Immediate Needs Annuities (Care Annuities)
An immediate needs annuity (INA) is purchased at the point when care is already required. You pay a lump sum premium to an insurer, and in return the insurer pays a regular income directly to the care home for the rest of your (or your parent's) life. Payments made directly to the care provider are free of income tax.
How it works: the premium is calculated based on the current cost of care, the expected duration (based on age, health, and care needs at the time of purchase), and the benefit level required. Because the annuity is purchased post-diagnosis of care needs, the insured's life expectancy is typically shorter than that of a healthy individual, which affects pricing.
Advantages:
- Eliminates the risk of outliving care funding.
- Payments are tax-free when made directly to the registered care provider.
- Provides certainty of care cost coverage.
- Can include inflation-linking and partnership provisions.
Disadvantages:
- The premium represents an upfront capital commitment that is not returned on death.
- Not appropriate if the individual is likely to recover and leave care.
- Premiums can be very high if the annuity must cover a substantial care cost.
INAs are typically arranged by specialist care funding advisers. They are relevant to clients who are, or whose parents are, already in or entering care. They are not pre-funding products.
Pre-Funded Long-Term Care Insurance
Pre-funded LTC policies are taken out before care is needed, ideally in the 50s or early 60s, to provide a benefit payable when care is eventually required. Premiums paid in advance (when the insured is younger and healthier) are typically lower than the cost of an INA purchased at the point of need.
Two main structures:
Regular premium reimbursement policies: pay regular premiums and, if care is required, the policy reimburses the cost of care up to a maximum benefit. Cover typically activates when the insured is unable to perform a defined number of Activities of Daily Living (ADLs) — such as dressing, bathing, eating, or mobility — or has a cognitive impairment.
Single premium care bonds: a lump sum is invested in a bond-type product. If care is required, an enhanced withdrawal or income is available to fund the care cost. On death without requiring care, the accumulated fund passes to the estate. These products blend investment and insurance elements and are sometimes structured as offshore investment bonds.
Challenges with pre-funded LTC products:
- The UK market for standalone LTC insurance has contracted significantly. Many insurers withdrew from the market in the 2010s due to underwriting uncertainty around longevity and care cost inflation. The product range is currently limited relative to other protection lines.
- Premiums are not guaranteed in many products, and premium reviews can lead to significant increases.
- Benefit levels that appear adequate today may be insufficient in 20-30 years due to care cost inflation.
The scarcity of pre-funded LTC products means that many clients achieve their care funding objective through general investment planning rather than dedicated LTC insurance — maintaining liquid assets, managing property equity, and structuring wealth to provide a care funding reserve.
Care Bonds and Investment Bond Solutions
For wealthier clients, structured investment bonds — particularly offshore investment bonds — can serve as a care funding vehicle. Assets are placed into the bond, which grows tax-efficiently during the accumulation period. When care is needed, regular withdrawals are made to fund care costs. On death, the bond passes through the estate (or through a trust) to beneficiaries.
This approach lacks the insurance element of a pure LTC policy — there is no guarantee that the fund will outlast the care need — but for clients with sufficient capital, the flexibility and tax efficiency of the investment bond structure can be attractive.
The interaction with IHT planning is important: assets held in an investment bond may form part of the taxable estate unless placed in trust. Clients with both IHT exposure and care cost concerns require careful integrated planning to address both objectives simultaneously.
IHT Planning and Care Funding: The Tension
A common IHT planning strategy is to give away assets to reduce the value of the estate. However, this creates a risk: if care costs arise, the assets that might have funded care have been given away. There is also the Deliberate Deprivation of Assets rules — if a local authority believes assets were given away to avoid care cost means-testing, it can treat the disposed assets as if they are still owned for the means test.
Balancing IHT planning against care cost funding requires careful thought:
- What is the realistic probability of requiring care, based on health, family history, and age?
- How much capital needs to be retained as a care funding reserve?
- Which assets should be protected for care cost funding, and which are available for IHT-reducing strategies?
There are no universal answers. The right balance depends on personal circumstances, risk tolerance, and family objectives.
Planning for International Clients
For clients living outside the UK, care funding arrangements reflect the health system of their country of residence. Some considerations:
- EU/EEA countries: public care funding varies widely across Europe. Some countries (notably Denmark, Sweden, and the Netherlands) have well-funded public care systems; others provide minimal public support. Spain, Cyprus, and Greece — popular destinations for UK expatriates — have limited public LTC provision and significant private costs.
- UAE, Thailand, and other expatriate hubs: long-term care infrastructure and public funding are generally limited. HNW expatriates are expected to self-fund.
- Return to UK: many expatriates intend to return to the UK in later life. Planning for UK care costs — including understanding the UK means test — should begin well before return.
How Global Investments Can Help
Care cost planning requires integration across protection, investment, estate planning, and tax — areas in which Global Investments has broad expertise. We work with specialist care funding advisers and can help clients model their care cost exposure, assess the suitability of immediate needs annuities or investment bond solutions, and ensure that IHT planning and care funding objectives are addressed coherently.
For clients outside the UK, we provide advice that reflects both their country of residence and their long-term intention to return — ensuring that care funding plans are portable and robust.
If you would like to discuss care funding planning as part of a broader financial review, please contact us to arrange a consultation.
This guide reflects UK funding rules as at June 2026. Care funding legislation is subject to change; the previously legislated £86,000 care cost cap was scrapped in 2024 and no replacement is currently in force. This article is for general information only and does not constitute regulated financial, legal, or social care advice. Always seek specialist professional advice before making care funding decisions.
This guide is for general information only and does not constitute financial or insurance advice. Policy terms, premium rates, and insurer eligibility criteria change — always verify current terms with a qualified independent adviser before taking out any policy.