Investment bonds and care-home fees: how the means test treats them

Investment bonds come up often in care-fee assessments, because the regulations give the surrender value of a life-assurance policy special treatment. This page sets out how a local authority in England treats a bond: the disregard and the words it turns on, withdrawals, and how councils assess whether buying a bond was deprivation of assets. Scotland, Wales and Northern Ireland have their own charging rules, which this page does not cover.

The disregard, and the words it turns on

The Care and Support (Charging and Assessment of Resources) Regulations 2014 disregard any amount the Income Support Regulations would disregard as the “surrender value of life insurance policy” (Sch 2 para 19). The Income Support rule it points to reads, in full: “The surrender value of any policy of life insurance.” The Income Support Regulations define a policy of life insurance:

The statutory guidance repeats the disregard in its list of capital that must be disregarded (Annex B para 33(b)) and then deals with investment bonds directly:

Two things follow from the text. First, the test is the definition, not the product name. A bond written as one or more life policies with surrender rights meets it. A product whose payment does not depend on a human life, such as a capital redemption bond that runs for a fixed term, does not appear to meet the words of the definition, and a council may then value it as ordinary capital: at its current market or surrender value, whichever is higher, less 10% where there would be expenses of sale and less any debt secured on it (reg 20). Second, the guidance itself calls the area complex and suggests councils may wish to take legal advice, so how a particular bond is treated is a decision the council makes on the policy documents in front of it.

What the disregard does to an assessment

For 2026/27 the upper capital limit in England is £23,250 and the lower limit £14,250. Capital between them adds £1 a week of tariff income for every £250, or part of £250. Take a care-home resident with £20,000 in savings and an investment bond bought with, and now worth, £100,000, years before any need for care was in view. Where the bond meets the definition and the council finds no deprivation, the surrender value is left out:

If instead the council concludes that £100,000 was used to buy the bond to reduce the charge, it can treat the person as still holding that sum as notional capital, and the disregard makes no difference to the result:

The two positions are the same client with the same assets. What separates them is the council’s view of why and when the bond was bought, which the next sections cover. The capital limits and the tariff are explained in the care means test and capital limits, and the treatment of the home in the property disregards.

Withdrawals: income or capital?

The disregard is of the surrender value of the policy. Money withdrawn from the bond is no longer part of that value, so on the wording of the rule the disregard does not cover it once paid out. What the council then does with the withdrawals depends on whether it classes them as income or capital, and the guidance does not decide that for bond withdrawals by name. It gives the general test instead:

Two related rules sit alongside it. The regulations treat some capital as income, including capital payable by instalments where the outstanding instalments and the person’s other capital together exceed a threshold taken from the Income Support rules, and any payment under an annuity (reg 16; Annex B para 55). Annex C says that “any income from an insurance policy is usually taken into account” (para 27), though that paragraph goes on to deal with mortgage protection policies rather than bond withdrawals. Whether a regular withdrawal is assessed as income, or counts as capital once received, is therefore for the council to decide on the pattern of payments. Either way, once paid out it is no longer covered by the surrender-value disregard.

The income-tax treatment of a withdrawal is a separate question with its own rules: whether a part surrender creates a chargeable event gain turns on the cumulative 5% allowance, as set out in the 5% allowance trap. The care guidance does not tie the care treatment to the tax treatment. The chargeable event gain calculator works the tax side.

Deprivation of assets: how councils assess it

Annex E defines deprivation as a person intentionally reducing their assets to reduce the amount they are charged for care, which means “they must have known that they needed care and support” (para 6). Among the common forms it lists are converting assets into a form that would be disregarded, putting assets into a trust that cannot be revoked, and:

The guidance is equally clear that deprivation is not to be assumed (para 5). It is only in question where the person has ceased to hold an asset that would otherwise have counted, or has turned it into one that is now disregarded (para 10), which is what buying a life-assurance bond with savings does where its surrender value is disregarded. The council then weighs two questions (para 11): whether avoiding the charge was a significant motivation in the timing of the disposal, and whether the person had a reasonable expectation, at that point, of needing care and of having to contribute to its cost. The guidance gives the example that it would be unreasonable to find deprivation if the person was fit and healthy at the time and could not have foreseen the need for care (para 12). It is for the person to show the council that they no longer have an asset (para 8).

Where the council finds deprivation, its first step is to charge as if it had not happened, treating the asset as notional capital or notional income (para 19; reg 22). Notional capital reduces week by week by the extra the person pays because of it (reg 23). Where an asset has been transferred to someone else to avoid the charge, the third party can be liable for the difference, up to the benefit they received (paras 21–22). A bond placed in a trust that cannot be revoked falls under the same questions as the purchase itself and, if the trust benefits someone else, the third-party rule above.

What the care checker does with a bond

The long-term care entitlement checker takes other capital as a single figure and has no separate field for a bond, so it assesses whatever capital figure is entered: it does not decide whether a bond’s surrender value is disregarded. Where the checker is told that savings or property were recently given away, it adds a deprivation caution, but it does not compute notional capital. It states a funding position; it does not advise.

Care and Support (Charging and Assessment of Resources) Regulations 2014 regs 16, 20, 22, 23, 25 and Sch 2 para 19 · Income Support (General) Regulations 1987 reg 2 and Sch 10 para 15 · Care and Support statutory guidance Annex B paras 8, 33, 53–55 · Annex C para 27 · Annex E paras 5–12, 19–22