If you need to self-fund care, one of your biggest worries is likely to be whether you’ll have to sell your home to pay for it.
The “miserly” system of means-testing for care costs means even those with very modest wealth face paying thousands of pounds more than average for their care, the boss of a leading UK charity has claimed.
The average annual cost of living in a residential care home full-time in 2026 stands at £67,496, according to Care UK.
The sky-high price is because the social care system is so chronically underfunded that self-funders effectively subsidise the fees of those receiving help from the council.
Caroline Abrahams, charity director at Age UK, said: “Many older people moving into a care home will be expected to shoulder most, if not all, of the cost themselves.
“Even those with very modest incomes and assets will find they do not qualify for financial help under the current miserly means-tested system.”
Local authorities spent £29.4bn on adult social care in 2024-25, a real-terms increase of £2.3bn compared with the year before.
For those who are self-funding and staring at an annual cost of almost £70,000, selling their home could be the only way to afford the care they need. But this can be a very tough decision for families to make.
Luckily, there are plenty of other options to consider before it gets to this point.
Do I need to pay for care?
The first step to answering this question is a care needs assessment. These are administered by your local authority and will establish what kind of care you need.
If your care needs are serious enough, it may be that your care can be partially or fully funded by the NHS.
NHS Continuing Healthcare covers the entire cost of care for those with complex healthcare needs, while NHS-funded nursing care provides £267.68 a week to those who need to go into a nursing home.
Nick Hutchings, chartered financial planner and accredited SOLLA adviser at rockwealth, pointed out that, even if you have been turned down before, if your condition changes then you can apply again.
“People forget that you can take a needs assessment more than once. If the person’s health changes for the worse, it may be worth applying again to see if you are eligible for NHS funding,” he said.
After this, a means test will determine whether you are eligible for state funding. The threshold in England and Northern Ireland is £23,250. If you have more than this in capital, then you will have to pay for your own care.
Your house will not be included in this means test if you receive care at home or if your partner continues living there after you have moved into care.
Am I eligible for benefits?
Even if you need to pay for care, you may still be eligible for some non-means-tested benefits.
For example, the Attendance Allowance is a tax-free benefit offered by the Department for Work and Pensions to people over state pension age who need help with personal care or supervision due to an illness, disability, or mental health condition.
This is worth either £76.70 or £114.60 a week, depending on the level of support someone needs. The allowance is paid every four weeks.
Jonathan Davis, of Jonathan Davis Wealth Management, said: “It is designed to help people with daily living expenses and can help them stay independent in their own home for longer.”
How to pay for care and keep your home
Deferred payment agreement
If you own your own home, but your other assets are below the care funding threshold, you could consider a deferred payment agreement.
This is a form of loan where the council agrees to pay the care home fees until the person dies, at which point the debt is either reclaimed from their assets, or the home is sold and the fees recovered from the sale.
Interest is charged on the loan, which tracks the market gilt rate – the interest rate that the Government pays on its debts – and is revised every six months.
Rental income
If a house is left empty after you move into care, then renting it out could be a way to cover the fees while retaining ownership of the property.
However, it is worth considering whether there is anyone to help with management of the property as you may struggle to do this yourself.
Immediate needs annuity
An immediate needs annuity, also known as a care needs annuity, provides you with a guaranteed income to cover care costs in exchange for a one-off lump sum. Some plans also come with built-in inflation protection, to account for future fee increases.
After the initial payment, the policy will pay out until the holder dies, so this can be extremely cost-effective if the person ends up living for a long period of time.
“They can cap the (potentially uncapped) cost of care and ensure remaining savings can be passed on to beneficiaries,” Mr David said.
However, Mr Hutchings said: “There is the risk they die much sooner than expected, in which case you could lose money.”
For example, if someone needed to cover a £20,000 shortfall on fees each year and they spent £80,000 on an annuity, paying that amount, they would fail to break even if they died within four years. If they lived for a decade, they would have saved themselves tens of thousands of pounds.
“They are also portable,” said Mr Hutchings. “Even if you want to move care homes, the annuity can be used to pay your new provider.”
Mr Hutchings said immediate care needs annuities can be used to negotiate with your care provider and bring down your fees.
“Care fees are going up, which makes it hard to know what your future shortfall will be. You can use your immediate needs annuity as a bargaining chip with your care home provider,” he added.
“You’re guaranteeing them an income, so they may be prepared to cap future fee increases.”
Deferred needs annuity
A deferred needs annuity would not begin paying out immediately, but after a set period of time. This brings down the initial cost of the policy and can protect against the risk of earlier-than-expected death.
Policies usually come with the option of “short-term capital protection”, meaning if you die before it begins paying out then your estate would be refunded.
These are usually valid for the first six months, but sometimes will offer a partial refund beyond this.
Can I give my house to my children to avoid care fees?
Possibly, but gifting your home to avoid care home fees may not be the best idea and can be risky.
If you die within seven years of giving away your home, your children may still have to pay a significant inheritance tax bill, depending on the value of your estate. Plus, if there’s a mortgage, they may also have to face stamp duty. You also lose your residence exemption, which allows you to avoid capital gains tax when you sell your home.
In addition, gifting property may be considered as “deliberate deprivation of assets”, meaning the council could still take into account your home when assessing your ability to pay for care.