Charging for residential accommodation

10.1Overall duty to charge

10.2Personal expenses allowance

10.2.1Adequacy and misuse of personal expenses allowance

10.3Temporary residents

10.3.1Disregarding certain assets of temporary residents

10.3.2Intermediate care

10.4Less-dependent residents

10.5Assessment of couples

10.5.1Liable spouse

10.6Assessment of capital

10.6.1What is counted as capital Valuation of capital

10.6.2Joint beneficial ownership of capital asset

10.6.3Disregarded capital Capital disregarded indefinitely Personal injury settlements: capital rules Capital disregarded for 12 weeks or 26 weeks Capital disregarded for 52 weeks Other disregarded capital

10.7Income treated as capital

10.8Notional capital

10.8.1Showing deprivation of capital

10.8.2Deprivation of capital and consequences

10.8.3Insolvency proceedings for deprivation of capital

10.9Assessment of real property (house or land)

10.9.1Temporary residents: disregard of person’s home

10.9.2Property occupied by other people and joint ownership Property occupied by other people: mandatory disregard Property occupied by other people and discretionary disregard Legal and beneficial ownership of property Joint ownership and willing buyer

10.9.3Intention to occupy property

10.9.4Property and deferred payments

10.10Assessment of income

10.10.1Notional income

10.10.2Income fully taken account of Top up payments as income of resident

10.10.3Income partly disregarded

10.10.4Income fully disregarded

10.11Responsibility for payment of fees

10.12Pursuit of debt

10.12.1Pursuing third parties for fees: six month rule

10.12.2Placing a charge on land or property

10.12.3Insolvency proceedings

10.13Care homes: personal financial issues


When local authorities arrange to place people in care homes under Part 3 of the National Assistance Act 1948, they are obliged to apply a statutory test of resources, or means test. This is to determine what contribution, if any, the resident must pay toward the cost of the accommodation. This is in contrast to charging for non-residential services, which is discretionary only and not governed by detailed legislative rules. Broadly, the charging rules for residential accommodation are as follows:

Test of resources. If a local authority places a person in residential accommodation under s.21 of the National Assistance Act 1948, it has a duty to apply a test of resources in order to ascertain what, if anything, the resident should have to pay toward the accommodation, board and personal care.

Registered nursing care. However, the registered nursing care element of the care provided, in a care home providing nursing, is the responsibility of the NHS and is thus free of charge to the resident (see section 17.9 below). This is payable in respect of privately funded residents as well, who have not been placed by the local authority.

NHS continuing health care. If a resident has been deemed by the NHS to have continuing health care status, then the NHS should fund the accommodation, board, personal care and nursing care – all of which will then be free of charge to the resident (see Chapter 18).

Mental health aftercare services. If a person is placed in residential accommodation by way of aftercare provision under s.117 of the Mental Health Act 1983, then provision is free of charge to the resident (see 11.5.8).

Self-funding. In some circumstances, if a person is assessed as having resources over the relevant threshold, and as having the mental and physical ability (albeit with assistance) to make his or her own arrangements, then the local authority may decline to place the person in a care home. If the person then makes his or her own arrangements, he or she is known as ‘self-funding’. However, when his or her resources are reduced to the relevant financial threshold, the local authority should then become responsible for making the placement.

The rules are detailed and complicated; the following represents an outline only. Reference should be made to the full, original sources of legislation and guidance, to expert advice or to specialist publications. The application of these rules sometimes proves controversial when people’s savings or homes have to be used to pay for residential or nursing home accommodation – or when assets, which have previously been gifted to somebody else (e.g. another family member), are nevertheless taken account of by the local authority in the means test.

Note. The extracts in the following chapter are drawn in the main from the National Assistance Act I948, the National Assistance (Assessment of Resources) Regulations I992 (SI I992/2977), and the Charging for Residential Accommodation Guide (CRAG 2008), a loose-leaf, regularly updated manual of guidance available from the Department of Health. The Regulations frequently cross-refer to, and rely on, the Income Support (General) Regulations I987 (SI I987/I967).


Generally speaking, local authorities have a duty to apply a test of resources to each person for whom they make arrangements for the provision of residential accommodation (National Assistance Act 1948, s.22). The test of resources is set out in regulations. In deciding whether a person needs residential accommodation – that is, whether the person needs care and attention not otherwise available – the local authority must disregard so much of the person’s resources as is specified in regulations.

If the authority is providing the accommodation directly, then the charge should be at a standard rate and represent the full cost to the local authority of provision. However, if the authority is satisfied, according to the statutory test of resources, that a person cannot afford to pay at the standard rate, then it must assess the person’s ability to pay, and charge a lower rate accordingly (National Assistance Act 1948, s.22).

In the case of independent care providers, the charging procedure is more or less the same: the local authority pays to the provider the cost of the place, and the resident repays the authority the amount he or she has been assessed to pay (National Assistance Act 1948, s.26).


In calculating the weekly amount payable by a resident, the authority must assume that he or she will require a certain amount of money for personal requirements. This is called the personal expenses allowance (PEA; National Assistance Act 1948, s.22). The amount of this is determined by regulations and is currently (2008-9) set at £21.15 per week (SI 2003/628). Department of Health guidance states that its purpose is to allow residents to have money to spend as they wish, and that it should not be spent on services that have been contracted for, or that have been assessed by the local authority or the NHS as necessary to meet a person’s needs (CRAG 2008, para 5.001).

The amount of the PEA can be varied (National Assistance Act 1948, s.22) in the case of less dependent residents; when the person in the residential accommodation has a dependent child; when the resident is in receipt of an occupational pension and is paying it to his or her partner, but is not married (so that the statutory disregard of half of the pension has not been triggered); or when the person is responsible for a property (and associated costs) that is disregarded in the test of resources (CRAG 2008, para 5.005).

Guidance also states that residents must be left with the full PEA, following the test of resources (CRAG 2008, para 5.002); in other words it should not be used toward paying care home fees.


Blatant misuse of personal expenses allowance is sometimes reported in practice. For instance, owners or managers of care homes sometimes pool people’s allowances, and spend them collectively. This means that individual residents not only lose control of their money, but that there might not even be an itemised account of how it has been spent (OFT 1998, p.26).

Pooled ‘extras account’ in care home: paying for newspapers she couldn’t read. A man complained to the local ombudsman about his mother’s placement in a council care home. Part of the complaint related to a pooled general ‘extras account’ operated by the home to cover personal items not included in the care home fees. This resulted in his mother effectively being charged for newspapers that she was unable to read, as well as for piano tuning, aquarium maintenance and plants for the garden. The ombudsman found this to be maladministration, insofar as items to be charged for were not clearly identified to residents in advance and some, such as piano tuning, were arguably not the responsibility of residents anyway (Hampshire CC 2001).

Likewise, if people do not have their needs for incontinence pads (see 17.13.2) met by the NHS in care homes, they might end up spending their personal expenses allowance on the pads (Hansard 2001).

Quite apart from improper erosion of the allowance, a thorough study – providing a salutary reminder of the ‘modest-but-adequate’ living standard that residents reasonably require – concluded that the allowance should anyway, even in 1997, have been nearer £40 than the £14 it was at that time. It considered the recurrent cost of items such as personal food (fruit, biscuits, tea/coffee, sugar, milk, soft drinks), alcohol (e.g. a glass of sherry to give a visitor), clothing, personal care (e.g. plasters, cough mixture, aspirin, hairbrush, shampoo, bath oil, sponge bag, walking stick, watch, small mirror), household goods (e.g. furniture, linen, electrical appliances, crockery, batteries, shoe brushes), household services (e.g. postage, telephone call, footwear repair, dry cleaning), leisure goods (e.g. television, radio, newspapers, magazines, books, games, knitting, embroidery), leisure services (e.g. cinema, keep-fit classes, dancing, social club), transport (e.g. to dentist, optician, hairdresser, shopping, cinema, dancing, keep fit classes) (Parker 1997).

Department of Health guidance stresses that local authorities should ensure that an individual resident’s need for continence supplies or chiropody is ‘fully reflected’ in their care plan; and that neither local authorities nor care homes have the right to require residents to spend their PEA in particular ways. It states that pressure of any kind is extremely poor practice (LAC (DH) (2007)4, annex).


A temporary resident is a person whose stay is unlikely to exceed 52 weeks or, in exceptional circumstances, is unlikely substantially to exceed 52 weeks (SI 1992/2977, r.2).

For the first eight weeks of a temporary stay, the local authority has discretion, subject to reasonableness, to limit what it charges (National Assistance Act 1948, s.22). In other words, it is not obliged to follow the statutory test of resources in these circumstances although it can do so (SI 1992/2977, r.22(5A). This gives local authorities considerable discretion in deciding what to charge for respite care or short-term breaks. Beyond a stay of eight weeks the local authority is obliged to apply the statutory charging procedure, subject to special rules applying to ‘temporary residents’.

Guidance explains that if a stay, which was thought to be permanent, turns out to be temporary only, then it would be ‘unreasonable’ for the authority to continue to apply the permanent residence rules to the resident. Conversely, if what was expected originally to be a temporary stay turns out to be permanent, the permanent residence rules should only be applied from the date of this realisation, not from the outset (CRAG 2008, paras 3.004-4A). A failure on the part of the local authority to be clear about when such a change of status occurs and to inform the resident and relevant family, may lead to a finding of maladministration by the local ombudsman:

Informing relative of change status of mother. A complaint was made to the local ombudsman about a woman with senile dementia who had been placed in a care home on a temporary basis. Following a meeting, the local authority decided that her status had changed to that of permanent resident. However, the son was not informed until nine months later, when he was also notified that there were accumulated arrears (representing the difference between temporary and permanent resident charges).

This was maladministration. Furthermore, because the son would have sold his mother’s house that much earlier, it meant that interest had been lost on the sum that would have been realised. The ombudsman recommended that the council pay £3300 in lost interest and that it issue clear guidance to its staff (Humberside CC 1992).


When applying the test of resources for temporary residents, a local authority must disregard certain assets.

These include, for example: (a) the person’s own home (when he or she is intending to return there, or is taking steps to dispose of it with a view to acquiring another more suitable); (b) the housing costs element of income support/pension credit; (c) housing benefit; (d) housing support charges under ‘Supporting People’ arrangements (including charges for a warden in sheltered housing, emergency alarms, cleaning of rooms and windows, general support and counselling; (e) reasonable home commitments not covered fully by income support/pension credit, housing benefit or Supporting People payments (e.g. fixed heating charge, water rates, mortgage payment not covered by those payments, insurance premiums, housing support charges not met by the local authority); (f) reasonable home commitments where income support/pension credit, housing benefit or Supporting People payments are not in payment; (g) cash payment made in lieu of concessionary coal; and (h) attendance allowance and disability living allowance, care component (SI 1992/2977, schedule 3).


A care home placement, made as part of intermediate care, must be free of charge for up to six weeks (see 19.6).


For people classed as less-dependent residents, authorities are explicitly given the option of not applying the normal charging rules. A less-dependent resident is defined as a person for whom accommodation is provided in premises not registered under the Care Standards Act 2000 (SI 1992/2977, rr.2, 5). The courts have accepted that residential accommodation arranged under s.21 of the National Assistance Act 1948 can embrace a wide range of accommodation including, at one extreme, ordinary housing (see 9.2.1).

Factors the local authority should take account of include the resident’s commitments (in relation to necessities such as food, fuel, clothing), independence, and incentive to become more independent (CRAG 2008, para 2.010).


Legislation does not authorise the financial assessment of the joint resources of a couple; local authorities are not empowered to apply the statutory means test under regulations (SI 1992/2977) to ascertain the potential liability of the spouse of a resident (CRAG 2008, para 4.001).

Each person entering residential care should be assessed individually, whether or not the other member of the couple is also a resident or remains at home. Before being excluded from assistance on grounds of capital, the resident must have in excess of £22,250 in his or her own right, whether separately or a share of jointly owned capital (CRAG 2008, para 4.003).


The liability of a married person to maintain his or her spouse should in principle be taken into account when the statutory means test is applied (CRAG 2008, para 4.001). This refers to s.42 of the National Assistance Act 1948, under which spouses have an obligation to maintain each other. Such liability applies only to husband and wife, and not to unmarried couples. The Department of Health has told local authorities that they ‘should exercise their right to NOT apply the liable relatives rule’ (LAC(DH)(2007)4, para 11).

The Health and Social Care Act 2008 contains provisions which will abolish the liable relative rules. Nonetheless, pending that abolition, the position is as follows. Guidance states that under ss.42 and 43 of the National Assistance Act 1948, local authorities may ask a spouse to refund all or part of the authority’s expenditure on residential accommodation for his or her husband or wife (as well as on other non-residential services under the Act). However, it states that this does not mean that an authority can demand that a spouse provide details of his or her resources. It should not use assessment forms which require information about the means of the spouse.

According to the guidance, the authority should instead use tact in explaining to residents and spouses the legal liability to maintain and point out that the extent of the liability is best considered in the light of the spouse’s resources. In each case the authority should decide if it is worth pursuing the spouse for maintenance, and what sum would be appropriate. This will involve discussion and negotiation with the spouse, and will be determined to a large extent by his or her financial circumstances in relation to his or her expenditure and normal standard of living. It suggests that following such negotiation, the local authority should, if appropriate, secure a retrospective contribution from the spouse.

The guidance also states that, in the Department of Health’s view, it would not be appropriate, for example, necessarily to expect spouses to reduce their resources to Income Support/Pension Credit levels. In any case, it concludes by saying that, ultimately, only the courts can decide what is an ‘appropriate’ amount (CRAG 2008, paras 11.001-6).

An Age Concern England study pointed out the defects of the liable spouse provision. These included:

lack of operational policies in many local authorities

arbitrary nature of whether a spouse is pursued for payment

England-wide, only a small number of spouses are anyway being pursued

where pursuit did take place, Department of Health guidance was breached and spouses were asked for financial details on the same form used for the financial assessment of the spouse entering the care home

huge variations in the approach to establishing a ‘reasonable’ spouse contribution

finance officers struggling to apply the rules, which most felt were unclear

some spouses, unaware of the local authority policy, had felt intimidated into agreeing a level of payment, unaware that they could negotiate a reasonable level of payment

the rules apply only to spouses, not to unmarried couples, and so are inequitable (Thompson and Wright 2001).


Resources are assessed in terms of both capital and income. If a resident individually has more than a prescribed upper capital figure, then he or she will automatically pay the whole amount due and receive no financial support from the local authority. This means that there is then no call to assess income. However, beneath that upper figure, but above a lower prescribed figure, any capital over the lower figure is deemed to produce a weekly tariff income of £1 for every £250.

At the time of writing the upper and lower figures are £21,250 and £13,500 respectively (SI 1992/2977, rr.20, 28).


Capital is not defined in legislation. Guidance states that capital, distinguished from income, is generally (a) not in respect of a specified period; and (b) not intended to form part of a series of payments.

Guidance gives a non-exhaustive list of examples of capital. Included are buildings, land, national savings certificates, premium bonds, stocks and shares, capital held by the Court of Protection or a receiver it has appointed, building society accounts, bank accounts, SAYE schemes, unit trusts, trust funds, cash and Cooperative share accounts. The guidance states that the position concerning investment bonds is complex and that local authorities should seek legal advice (CRAG 2008, para 6.002). Income from capital is generally treated as capital (not income), except in the case of certain disregarded capital (SI 1992/2977, r.22). Valuation of capital

Capital (other than National Savings Certificates) is valued at the current market or surrender value, less 10 per cent if there would be actual expenses arising directly from the sale of the asset, and less any outstanding debts secured on the asset (e.g. a mortgage) (SI 1992/2977, r.23).


A capital asset normally belongs to the person in whose name it is held, that is, the legal owner. However, sometimes, somebody else will be the beneficial owner, in part or in whole. However, evidence would be required. For instance, a resident may have £10,000 savings and £6500 in shares, but be able to show that the shares were bought on behalf of his son (who is abroad) and will be transferred to him on his return. In which case, the son is the beneficial, though not yet legal, owner of the shares. The resident’s capital therefore is confined to the £10,000 savings only (CRAG 2008, para 6.008).

For joint beneficial ownership of a capital asset, except for an interest in land, the total value should be divided equally between the owners (SI 1992/2977, r.27).


Certain capital is disregarded either indefinitely or for a period of time. Capital disregarded indefinitely

Capital disregarded indefinitely includes, for example, property in specified circumstances, surrender value of life insurance policies and annuities, payment of training bonus up to £200, age-related payments to pensioners (under the Age Related Payments Act 2004), payments in kind from charities, personal possessions such as paintings or antiques (unless bought to reduce the accommodation charge payable), capital treated as income or student loans, payments from various trust (the MacFarlane Trusts, Skipton Fund payments, the Fund (payments for non-haemophiliacs infected with HIV) or Independent Living Funds, Social Fund payments, value of funds held in trust or administered by a court (e.g. Court of Protection) following payment for personal injury, value of a right to receive income (under an annuity, outstanding instalments under an agreement to repay a capital sum, personal injury trust, life interest or liferent, income payable abroad which cannot be transferred to the UK, occupational pension, rent), ex gratia payments paid to former Japanese prisoners. And so on (it is a long list) (SI 1992/2977, schedule 4; CRAG 2008, 6.028). Personal injury settlements: capital rules

From April 2008, the rules were amended so as to make clear that any payments actually made in consequence of personal injury to the person or his her partner should be disregarded, in the calculation of capital, for 52 weeks – unless the payment was made specifically (and identified by a court as such) for the purpose of covering the cost of care. In addition, the disregard, in the calculation of capital, of awards of personal injury damages relates not just to court-held damages, but also where the damages are held subject to the order or direction of the court (SI 1992/2977, schedule 4, as amended by SI 2008/593).

Where the capital is to be disregarded, the disregard applies to the whole of the capital (and also the value of the right to receive payments from the trust) – as the courts have confirmed:

Disregarding all the capital of personal injury payments held in trust by a court. It was argued in one court case that the capital disregard for personal injury payment held in trust by a court should apply only to the part of the compensation payment awarded for pain, suffering and loss of amenity – not, for example, to the part covering future care costs or loss of earnings. If this were so, the local authority could take account of at least some of the personal injury payment capital, for the purpose of charging for the residential care being provided to the person involved. (He had sustained a severe head injury at a textile mill, when retrieving a cricket ball from the roof of a shed.)