Local Authority Funding for Care Homes Explained

For many families, the question of who pays for care home fees is one of the most stressful parts of the process. Local authority funding is available to those who meet the eligibility criteria, but the rules around how it works, what gets counted, and how much the council actually contributes are not always clearly explained.

This article sets out exactly how local authority funding for care homes works in England in 2026: the thresholds, the assessment process, what happens to your income, the top-up fee question, and how to approach the transition from self-funding to council support.

If you are considering care at one of our homes and want to talk through the funding side of things, we are always happy to help. Speak to our team here.

Who Is Eligible for Local Authority Funding?

Local authority funding for care homes is means-tested. To access it, two things need to happen. First, a care needs assessment must confirm that residential care is the appropriate level of support. Second, a financial assessment must show that your capital falls below the upper threshold.

In England, the capital thresholds for 2026 remain unchanged from previous years:

• Above £23,250: You are classed as a self-funder and pay the full cost of your care.
• Between £14,250 and £23,250: You qualify for partial local authority support. You also pay a tariff income contribution of £1 per week for every £250 of capital above £14,250.
• Below £14,250: Your capital is disregarded in the means test. You still contribute from your income, but the council funds the rest.

These thresholds were due to increase significantly under reforms proposed by the previous government. The upper limit would have risen to £100,000 and a lifetime cap of £86,000 on personal care costs would have been introduced. Both were scrapped by the Labour government in July 2024. The current thresholds remain in place with no confirmed changes on the horizon.

"We find that a lot of families arrive thinking the £100,000 threshold is in place because they read about it online. It is important to us that families understand the real position before they start planning, so they are not caught out." -- Living Developments

What Counts as Capital in the Means Test?

The financial assessment looks at your total capital, which includes savings, investments, shares, and in most cases the value of your property. For care home placements, your home is typically included in the assessment, which is one of the key differences between residential and home care funding.

There are important exceptions where the value of your home must be disregarded:

• A spouse or civil partner continues to live there.
• A dependent child continues to live there.
• A close relative aged 60 or over continues to live there.
• A former carer, who gave up their own home to care for you, continues to live there.

There is also a 12-week property disregard that applies when you first move into a care home permanently. During those first 12 weeks, the local authority must ignore the value of your property when calculating your contribution. This gives families time to make decisions about the property, whether that is selling it, renting it out, or entering a Deferred Payment Agreement. The 12 weeks start from the date your placement becomes permanent.

What Happens to Your Income?

Even when the local authority is funding your care, you do not keep all of your income. The vast majority of your income, including State Pension, other pensions, and most benefits, will be counted as your contribution towards the cost of care.

The exception is your Personal Expenses Allowance (PEA). From April 2026, the PEA is £31.80 per week in England. This is the minimum amount you are entitled to keep each week for personal spending, covering things like toiletries, newspapers, clothing, or a haircut. Local authorities have the discretion to increase this amount in certain circumstances, for example if you have ongoing property costs, a vehicle, or a pet.

The council cannot ask you to put your PEA towards care costs. It is protected.

One important point on benefits: Attendance Allowance stops after 28 days if the local authority is funding your care. If you are self-funding, you can continue to receive it. This distinction matters when families are calculating total income and planning how costs will be managed.

What Is a Personal Budget?

Once the financial assessment is complete, the local authority will confirm your personal budget. This is the total amount the council determines your care should cost, combining their contribution and yours. It is not simply what the council pays on your behalf; it is the combined figure they consider appropriate for your assessed needs.

The personal budget sets the baseline for which care homes are available to you without a top-up arrangement. Any home that can meet your care needs and is willing to accept the personal budget rate is available to you. You have the right to choose.

What Are Top-Up Fees and How Do They Work?

If the care home you or your family want costs more than the local authority's standard rate for your area, a top-up fee covers the difference. This is a common arrangement and it is legally permitted, but there are specific rules around how it works.

In almost all cases, the top-up fee must be paid by a third party, usually a family member or a charitable organisation. You cannot normally pay the top-up yourself, because your personal budget has already been set following the financial assessment. The exception is if your care is funded under Section 117 aftercare, following compulsory mental health treatment.

If a family member agrees to pay a top-up, they will be asked to sign a formal agreement with the local authority. It is important they understand this is an ongoing financial commitment. If the payer can no longer afford the top-up, the council must be notified, and the situation will be reassessed, which may mean considering a move to a different care home.

Before agreeing to a top-up arrangement, we always recommend that families speak with an independent financial adviser to make sure the commitment is sustainable long term.

"Top-up arrangements can work very well for families who have a preferred home in mind and the means to bridge the gap. Where we see problems is when the commitment has not been properly thought through. We are happy to walk families through exactly what our fees are and what the council is likely to contribute in their area, so there are no surprises." -- Living Developments

What Is a Deferred Payment Agreement?

If your capital is primarily tied up in property rather than liquid savings, a Deferred Payment Agreement (DPA) may be an option. This allows the local authority to fund your care initially and recover the cost from the sale of your property at a later date, typically when the property is sold or when you pass away.

To qualify in England, your capital (excluding the property) must be below £23,250. Interest is charged on the deferred amount over time, and the council places a legal charge on the property to secure the debt. A DPA prevents families from having to sell a home urgently and under pressure, which can otherwise lead to poor financial outcomes.

Not all local authorities will approve a DPA in every case. They can decline if the property is of low value or if recovery of the debt would be difficult. However, if you believe you qualify and are refused, you can request a review of that decision.

Can You Switch from Self-Funding to Local Authority Funding?

Yes. Many people begin their care home journey as self-funders because their capital is above the threshold, and then approach their local authority as their savings reduce. This is a well-established transition and the local authority is obligated to carry out a financial assessment once you request one, as long as your capital is approaching or has fallen below £23,250.

The important thing is not to wait until your funds have run out before making contact. As your capital approaches the threshold, request a financial assessment so the process is underway and a personal budget can be established without a gap in funding.

Keep clear records of your care home payments over time, as you will need to demonstrate how your capital has been spent.

What Is Deprivation of Assets?

Deliberately reducing your capital, whether by gifting money to family members, transferring property, or making significant purchases, in order to fall below the funding threshold is known as deprivation of assets. Local authorities can investigate this, and there is no statutory time limit on how far back they can look. The widely repeated idea that gifts made more than seven years ago cannot be challenged is incorrect in the context of care funding.

If the local authority concludes that assets were intentionally reduced to avoid care fees, they can assess you as if you still held those assets. This can result in you being treated as a self-funder even if your actual capital is below the threshold.

How Does Local Authority Funding Work at Living Developments?

Our three homes in the North West accept both self-funded and local authority-funded residents. If you are council-funded, we will work with the relevant local authority to agree a placement that meets your assessed needs. We are transparent about our fees from the outset, and where a top-up arrangement is needed, we will make sure families fully understand what is involved before any agreement is signed.

You can find out more about each of our homes and the types of care we offer at livingdevelopments.com/care-homes. Our three locations are:

• Elmtree House, Newton-le-Willows, Merseyside: 01925 291492
• The Millfield, Keswick, Cumbria: 017687 72099
• The Willows, Marton Moss, Lancashire: 01253 693961

For further reading on the assessment process that sits before any funding discussion, see our guide on what to expect from a care needs assessment. For a broader overview of all funding routes, including NHS Continuing Healthcare and self-funding options, visit our care home funding guide.

Frequently Asked Questions

Does the local authority have to fund my care if I meet the criteria?

Yes. Under the Care Act 2014, local authorities have a legal duty to meet the eligible needs of adults who live in their area and who cannot afford to pay for their own care. This is not discretionary once eligibility has been established.

What if my local authority rate is lower than the care home I want?

You have the right to choose your preferred care home as long as it can meet your assessed needs. If it costs more than the council rate, a top-up arrangement can be put in place, provided a third party is willing and able to pay the difference.

Will the council pay directly to the care home?

Yes. Where the local authority is funding or part-funding a placement, payments are made directly to the care home. These payments are not subject to income tax.

Can I be reassessed if my circumstances change?

Yes. Your financial assessment should be reviewed at least annually, and you can also request a reassessment if your circumstances change, for example if your income or capital changes significantly. You must inform the local authority of any such changes.

What happens if the person paying a top-up can no longer afford it?

They must notify the local authority as soon as possible. The council will reassess the situation. If no alternative funding can be found, the resident may need to move to a care home that falls within the personal budget, which is a difficult outcome but one that can sometimes be avoided with early communication.

‍