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Pension Credit | Attendance Allowance | Carer's Allowance
NHS Funded Care (Registered Nursing Care Contribution) | State Pensions | Income Tax

State Benefits & Care

State benefits can be tricky and complex. Due to the complexity of each we can only consider a summary of the main benefits which relate to care and as they relate to care:-

I. Pension Credit

Pension Credit is a means tested, but tax-free, benefit which is particularly complex in its working out. It is effectively income support for those aged 60 and above, ensuring a minimum level of income. There are two aspects to Pension Credit:-

Guarantee Credit tops up the weekly income of those with less than:-

The age from which you can get the Guarantee Credit – the qualifying age – is gradually increasing from 60 to 65 between April 2010 and 2020

Savings Credit is for those 65 or older – or where at least one partner is in the case of couples – and rewards those eligible with savings or other income. Savings credit provides the potential for up to an extra:-

Guarantee and/or Savings Credit may both be received, dependent on circumstances.

It is a requirement that the Pensions, Disability & Carers Service is notified once someone goes into care, if they are receiving Pension Credit. If the person in care is within an assessed income period (a payment period based on a prior assessment, which can be for up to five years), it ends once care begins.

Once capital exceeds £10,000 Pension Credit begins to be withdrawn. Capital is turned into‘ tariff’ income at a rate of £1 per week for every £500 of capital and then applied to the means test. Although there is no upper Pension Credit threshold, the tariff income mechanism effectively produces one (e.g., £100,000 of capital is treated as £200 per week of tariff income, so a home being included in the means test can make a big difference - see below). Annuity income, including from immediate care plans, is included in the means test.

If one of the partners in a couple goes into care, the value of the home is usually disregarded in the means test whilst the remaining partner still lives there. However, the partners cease to be assessed as a couple and are assessed individually. The domestic home becomes included in the Pension Credit means test once a non-partnered person moves into a care home. This will usually reduce or in most cases take away any right to both aspects of Pension Credit. However, usually up to 26 weeks is disregarded to allow the house to be sold, if active steps for a sale are being taken. If the person in care does have Pension Credit whilst in LA funded care, he or she will be expected to use it towards costs and personal expenses as with any other income (although part of the Pension Savings Credit is disregarded). As above, if the person in care is self-funded, it is unusual for them to be in receipt of Pension Credit as their total income and capital will often at least reduce, but in many-to-most cases take away, any entitlement to this benefit.

The severely disabled can receive an extra £53.65 if single, or one of a couple and only one qualifies, or £107.30 if a couple and both qualify. Carers can also receive an extra £30.05 or a combined £59 if both partners in a couple are carers. There is also help available for rent, mortgage interest, council tax and certain other housing costs. However, this will obviously cease when someone goes into residential care, based on their individual assessment.

II. Attendance Allowance & Disability Living Allowance

Attendance Allowance (AA) & Disability Living Allowance (DLA) are benefits to help with extra costs for those very ill or disabled. DLA is for those up to age 64 and AA is for those aged 65 and over.

Disability Living Allowance

DLA has three rates:

There is also a mobility component of:-

Attendance Allowance

AA is obviously the benefit usually applicable to those needing age-related care, and on which we will focus. AA has two rates:-

Both DLA and AA are not means tested or taxable. However, they are removed if the person in care is receiving LA or NHS funded care, usually after 28 days - although hospital stays within the previous four weeks are included. It is allowed to remain if the person in care is receiving privately funded care. If care is provided by the LA and being repaid to them – such as under a deferred payment agreement – it should continue to be paid. Unlike the Registered Nursing Care Contribution, Attendance Allowance claimants do not need to be in receipt of nursing care to be eligible...

III. Carer’s Allowance

Carer’s Allowance (CA) is a taxable and means- tested benefit of £53.90 per week payable to people who spend at least 35 hours caring for a severely disabled person, there are also additions for dependent adults and children. CA can be complex in its outworking and relation with other benefits. In cases of residential care, the carer’s work has stopped and has been taken over by the care home or agency, and CA will therefore cease.

IV. NHS Funded Nursing Care (or Registered Nursing Care Contribution, RNCC)

See State Funding

V. State Pensions

These are not means tested in themselves, and remain in place whether care is LA or privately funded. As pensions received will be based on individual credits and the various state schemes paid into, publishing rates is not relevant. However, LAs will expect state pensions received to be used first before they add their support, and most people in self funded care will need to use them to pay towards their care and personal expenses. State pensions are taxable.

VI. Income Tax

Tax is still a fact of life for many people who go into care. Unfortunately, there are no care exemptions. There are three aspects of income tax: allowances, bands and rates.

Tax allowances are the amount of otherwise taxable income we are allowed to receive before income becomes taxable.

The married allowance is a tax credit, with an amount equal to 10% of it being deducted from tax itself, which would have been otherwise due, rather than the full amount deducted from potentially taxable (gross) income.

There is a £22,900 Income threshold for age allowances, over which the increased allowances are reduced by £1 for every £2 of applicable income, until the normal individual allowances are met and a minimum of £2,670 married allowance. Blind people also have an additional allowance of £1,890.

The standard personal allowance is reduced by £1 for every £2 of taxable income over £100,000.

Income above allowances is banded and taxed at the applicable rate per band:-

There are tax-free/efficient investment alternatives, including Immediate Care Plans: care fee benefit is tax-free when paid to the care provider, investment bonds pay withdrawals up to 5% x the initial investment pa x 20 years with no immediate deduction of tax, and ISA income is fully or mostly tax-free.

28/07/10 Revision [top]