Since April 2015, deferred payment agreements have been available from all councils across England that enables people to use the value of their homes to help pay care home costs.
Subject to eligibility, the local council will help to pay your care home bills on your behalf. This option allows the delay of repaying the local council until people choose to sell their homes, or until after their death.
There are costs involved as councils may charge interest on the amount owed to them, and there may be a fee for setting this arrangement up.
Essentially though, a deferred payment agreement means that people should not be forced to sell their home in their lifetime to pay care home bills.
You should be eligible for a deferred payment agreement if:
- you are receiving care in a care home (or you are going to move into one soon)
- you own your own home (unless your partner or certain others live there)
- you have savings and investments of less than £23,250 (not including the value of your home or your pension pot)
A deferred payment agreement is only one way to pay for care, and we would consider a range of options in order to assess if this is best given an individuals circumstances.
You can still choose to sell your home and repay the deferred payment agreement at any point. Or pay it back out of your estate, following your death.
How much can be deferred
As a guide, most people can use around 80% to 90% of the property value in their home – referred to as equity.
If you live with a partner then the local council will most likely exclude the value of your home when it assesses your finances to work out how much you will have to pay towards the costs of your care. This means that you should not face having to sell your home to pay for care and will not need a deferred payment agreement. If you and another person part-own your property and it isn’t excluded, you should still be entitled to a deferred payment.
Interest rate on deferred payment agreements
The council can charge interest on the amount owed to them while they are helping to pay your care home bills on your behalf. The maximum interest rate they can charge is currently 2.25%. This rate is reviewed every 6 months. Interest is charged to cover their costs and not to make a profit.
Renting your property
It is up to you who can live in your home if you have a deferred payment agreement – though there are benefits to keeping your home occupied. It must be maintained and insured for as long as you have the deferred payment agreement, and this can be cheaper and/or easier if someone is living there. You might choose to rent it out and use the income to reduce the amount you asked the council to defer.
Selling your home
If you have a deferred payment agreement, it means you should not be forced to sell your home in your lifetime unless you decide you want to.
The money owed to the council from care home bills paid on your behalf during the deferred payment agreement will need to be repaid eventually. This can either be repaid by selling your house or you can arrange another way to pay if you are able to. For example, someone else could pay the money owed, or your family could use any pay-out from your life assurance after your death.
Your deferred payment agreement will end automatically following your death, and your executor will have 90 days to arrange payment of the money owed. If someone else (like a friend or relative) chooses to pay the bill, then your home will not have to be sold.
Gifting money or your home to your children
Your home and your money still belong to you if you have a deferred payment agreement, so you can of course make gifts to your children. But a deferred payment agreement for care costs will always need to be repaid – either by the sale of your home after your death, by someone else, or by something like the pay-out from a life assurance policy. If the council believes that your home or your money have been given away deliberately to avoid paying care charges, then they have the power to recover any money that they are owed.
The maximum amount that the local council will pay on your behalf, along with the interest rate and fees, will be set out at the start of the deferred payment agreement. These will be reviewed regularly and can be changed. Other conditions – for example property maintenance – will also be written down in your agreement. You should read and understand the full terms and conditions before signing a deferred payment agreement. You are recommended to get independent advice from a solicitor, financial adviser or an independent organisation before signing the agreement.
After your death
The executor of your estate should arrange repayment of the money owed to the council, either by putting your home up for sale, or by arranging for another person, such as your heir, to pay. This will usually need to be done within 90 days. If the money owed is repaid without your home being sold, then your property will be dealt with according to any instructions you have left.
Your heirs will usually have 90 days to repay the deferred payment agreement. Interest charges will continue to be added during this period.
If, after 90 days they haven’t taken reasonable steps to repay the deferred payment agreement, then the council has the power to recover the amount owed through the courts.
Any money that is left after the money owed to the council has been repaid from your estate will be divided up according to any instructions that you leave.
Deferred payment agreements for people who do not have the mental capacity to understand
Carers and families can help people to make decisions about their care and how to pay for it. If the council is concerned that the person applying for the deferred payment agreement does not have the capacity to understand, or won’t have capacity to understand in the near future, then another person may need to represent them. Such persons must be properly authorised, like someone with legal power of attorney.
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If you wish to find out more and arrange a consultation please do contact me.