Onshore Investment Bonds And Long-Term Care Planning
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Onshore Investment Bonds And Long-Term Care Planning
Mark Lambert, Head of Onshore Bond Distribution at HSBC Life UK considers the challenges of long-term care means testing and the potential advantages offered by single premium onshore investment bonds.
Meeting the cost of residential and nursing care in old age is a growing issue for many individuals. As life expectancy increases, more people can anticipate requiring some form of long-term care.
The local authority will carry out a needs assessment to establish whether an individual meets the assistance eligibility criteria. Next, the authority will examine whether residential care is an appropriate way to meet these needs, before deciding if they can help with the cost.
Advisers with elderly clients need to understand the issues related to long-term care funding – what counts towards the capital limit and what assets will be disregarded?
Advisers will also need to understand what counts as deliberate deprivation and when a client can be treated as having notional capital despite having given assets away or invested money into disregarded assets.
Some of the basics
The relevant capital limits in 2024/25 are as follows:
- Upper limit: £23,250 (the £23,250 limit is rising to £100,000 from October 2025)
- Lower limit: £14,250
This means that if their capital is valued at more than £23,250, they must pay full care fees (self-fund) until their capital reduces to the upper capital limit, at which point a local authority may have to assist with funding.
Capital between £14,250 and £23,250 is assessed as if they have an assumed income. For every £250 or part of £250 above £14,250, they are treated as if they have an extra £1 a week income.
The means test considers most income and capital. For example, the values of investments, such as OEICs, ISAs and National Savings Certificates, would always be categorised as capital.
Certain types of income, such as money from some disability benefits, are ignored in the means test.
This is the same for certain types of capital, including capital held in a discretionary trust or any capital held in a trust derived from a payment of a personal injury; and the value of a person’s main residence – which will be disregarded for 12 weeks (although this disregard will apply indefinitely where a spouse, partner, civil partner or other vulnerable relative is in occupation).
‘Deliberate deprivation’ rules
Where an individual transfers an asset out of his or her possession to avoid or reduce the charge for accommodation, this may be treated as ‘deliberate deprivation’. Deprivation can occur in a number of ways including making a gift or putting capital into trust.
A person who is found to have deliberately deprived themselves of capital will be treated as having ‘notional capital’ to the value of the capital disposed of for the purpose of the means test. It’s worth bearing in mind that if the notional capital, when added to actual capital, exceeds the capital limit, the local authority may assess the resident as being able to meet the full cost of care.
Planning – Trusts
Care should be taken when putting money into an irrevocable trust as this may also be seen as a possible example of deprivation of assets. The motive for, and timing of, the gift will be crucial factors in the local authority determining whether or not the deprivation was deliberately carried out in order to avoid or a reduce the charge payable.
The person could receive future payments from a discretionary trust, such as income rights or maturity payments, and these would be disregarded. However, if they are a beneficiary of a trust, the capital value of the trust fund will only be considered if the resident is absolutely entitled to it.
Planning – Investment Bonds
Although OEICs, ISAs and National Savings Certificates are categorised as capital, one asset that is listed as being disregarded is the surrender value of any life insurance policy (or annuity).
Single premium investment bonds, such as the HSBC Onshore Investment Bond, will usually be treated as policies of life insurance and so will be disregarded in any means testing. However, investment bonds that have no element of life cover, often called capital redemption bonds and typically from offshore providers, would be included as capital.
Using investment bonds preserves choice – for example, if NHS funding is available, or the client and their family decide it is more desirable to pay for private care. The taxation structure of the bond may be particularly favourable in these instances, especially if the investor can use their accumulated 5% allowances.
*The rules described are for England only and not Scotland, Wales, or Northern Ireland.
HSBC Onshore Investment Bond
To find out more about the HSBC Onshore Investment Bond with its open architecture investment capability, option for multiple lives assured, suite of trusts and competitive charges, please email bondbdmsupport@hsbc.com with your contact details.
For professional advisers only – not for use with clients.
The value of investments can go down as well as up, meaning investors may not get back the amount of their original investment.
Most investments should be viewed as a medium to long term commitment.
The impact of taxation (and any tax reliefs) depends on an investor’s individual circumstances. The information contained in this email is based on our understanding and interpretation of current UK tax law and HM Revenue & Customs practice as at April 2024. Tax law and practice may change in the future.
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