Care Home Deferred Payment Agreement UK (2026): How the Council Loan Scheme Works

A deferred payment agreement (DPA) is a council-run scheme under Care Act 2014 ss.34-36 that allows a person entering a care home to defer (postpone) paying care costs — with the local authority effectively lending the money against a legal charge on their property. The debt is repaid when the property is sold, the person dies and the estate is wound up, or the person requests earlier repayment. Key eligibility criteria (Care and Support (Deferred Payment) Regulations 2014, SI 2014/2671): (1) CARE HOME RESIDENCY: the person must have been or be about to be placed in a care home (residential or nursing). DPAs are not available for home care or day care; (2) PROPERTY OWNED: the person must own a property (or have a beneficial interest in one) that is not currently being disregarded in the means test. The most common scenario: the person's home is no longer disregarded because the 12-week property disregard period has expired and no qualifying person (spouse; dependent child; carer) is still living there; (3) CAPITAL BELOW UPPER THRESHOLD: the person's non-property capital must be below the upper threshold (£23,250 in 2026). If capital exceeds £23,250 entirely in cash/savings, the person is expected to self-fund without a DPA; (4) ADEQUATE EQUITY: the council must be satisfied there is sufficient equity in the property to cover the anticipated care costs. The property must not be subject to a charge that would leave insufficient equity — councils typically require at least £14,250 (the lower capital threshold) to remain in equity above the total of the council's charge plus any prior charges; (5) LOCAL AUTHORITY DISCRETION: the Care Act gives councils discretion to offer DPAs beyond these minimum qualifying criteria — for example, to someone whose property is occupied by an elderly family member who does not technically qualify as a 'qualifying occupier' but where selling would cause significant hardship. Councils must have a published DPA scheme.

The DPA process: (1) MEANS TEST AND CONTRIBUTION: the local authority completes a financial assessment (means test). This calculates how much the person should contribute toward their care each week from their income and capital. The assessed contribution is the amount the person must pay personally. The DPA covers the gap between the assessed contribution and the full care home cost — not the entire fee; (2) LEGAL CHARGE ON PROPERTY: the council registers a legal charge on the person's property at HM Land Registry. This is a formal secured debt — like a mortgage. The charge means the council has a legal interest in the property; no sale can proceed without the council being repaid. The charge is a first or second charge depending on existing mortgages; (3) 12-WEEK PROPERTY DISREGARD: for the first 12 weeks after a person enters a care home (as a permanent resident), their main home is automatically disregarded from the means test — regardless of who lives there. During this 12-week period, the person may be assessed as unable to afford full care costs, with the shortfall paid by the council and added to any subsequent DPA. This gives breathing space to arrange finances or sell the property without immediate pressure; (4) INTEREST ACCRUAL: once the DPA is in place, the outstanding debt accrues compound interest at a rate set by the Government twice yearly (based on the Office for Budget Responsibility's GDP deflator). The rate is published on gov.uk (from 1 January 2026: check the current rate). The rate has been low but compounds daily on the running balance; (5) ADMINISTRATION FEE: councils can charge an administration fee for setting up the DPA (typically £300–£600, added to the debt or paid upfront); (6) TOP-UP FEES: if the person or family wants a care home that costs more than the council's usual rate for that type of care, a 'top-up' fee must be paid by a third party (family member). The top-up cannot be paid from the DPA (the DPA only covers the council's assessed rate); (7) REVIEW: the DPA must be reviewed at least annually. The council checks that the equity in the property remains adequate to cover the accumulating debt.

Repayment of the DPA debt (fees advanced plus compound interest) is triggered by specific events: (1) SALE OF THE PROPERTY: when the property is sold (either during the person's lifetime or after death during estate administration), the proceeds are used to repay the council. The council's legal charge means repayment must happen before remaining sale proceeds pass to the estate/beneficiaries; (2) DEATH OF THE PERSON: the DPA debt becomes a debt of the estate on the person's death. The executor must repay the outstanding balance (fees + interest) from estate assets before distributing the estate. If the property is the main estate asset, it must be sold to repay the debt. The executor has up to 90 days from the date of death (or from the grant of probate if probate is required) to repay without further interest accruing. After 90 days, interest resumes; (3) TRANSFER OF PROPERTY: if the property is transferred during the person's lifetime (e.g., gifted to a child), the charge remains on the title and must be discharged before the transfer completes; (4) VOLUNTARY EARLY REPAYMENT: the person (or their attorney/deputy) can repay the DPA at any time. This is sensible if the property is sold or if the person has other assets that become available; (5) TERMINATION OF CARE HOME RESIDENCY: if the person returns home permanently (an uncommon but possible scenario), the DPA ends and full repayment becomes due; (6) THE ESTATE TIMELINE: from a planning perspective, the existence of a DPA debt registered against the property is a significant factor in estate administration. Executors should check the Land Registry title and contact the local authority as one of the first steps — before marketing the property. The estate cannot complete a sale without discharging the charge.

The DPA creates a secured debt against the property that affects both the estate value and IHT: (1) IHT — THE DEBT REDUCES THE TAXABLE ESTATE: outstanding DPA debt at the date of death is a deductible liability of the estate for IHT purposes (IHTA 1984 s.162A et seq.). The council's charge reduces the net value of the property for IHT. Example: property worth £400,000 with £80,000 outstanding DPA debt — net value for IHT = £320,000; (2) RNRB IMPLICATIONS: the property must pass to 'direct descendants' for the Residence Nil-Rate Band (RNRB) to apply. A property subject to a DPA charge can still qualify for the RNRB if it meets the other conditions — the charge is a deduction from value, not a disqualifying factor; (3) CARE AND ESTATE PLANNING INTERACTION: a DPA gives families more time to plan the estate. Rather than selling the property in a rush to fund care, the property can be retained: (a) To preserve family home value (particularly if the market is rising); (b) To qualify for the RNRB at the second death (if the home passes to direct descendants); (c) To avoid a forced sale at an undervalue; (4) LIFE INTEREST TRUST AND DPA: if the deceased's will created a life interest trust (IPDI) over the property for the surviving spouse, and the survivor then needs care, the DPA would be registered against the trust property. Complex — seek specialist legal advice for this scenario; (5) ESTATE PLANNING BEFORE CARE NEED: the most effective planning is to structure the estate well in advance of care need — appropriate will, LPA, pension nominations, life insurance in trust. Property transfers made primarily to avoid the DPA or care costs after care need arises are at high risk of being treated as deprivation of assets (see our guide on deprivation of assets).

A DPA is not always the best solution. The alternatives and considerations: (1) SELL THE PROPERTY: the most straightforward option. Property sold, proceeds fund care (above £23,250 self-funded; below £23,250 partial local authority contribution kicks in). No ongoing interest accrual. Drawback: the family loses the family home; estate value is reduced by care costs; no asset for future generations; (2) EQUITY RELEASE / LIFETIME MORTGAGE: the person (or their attorney) takes a lifetime mortgage on the property. The proceeds pay care costs. On death, the property is sold and the mortgage repaid. Unlike a DPA, a private lender (not the council) holds the charge. Drawback: commercial interest rates (usually higher than DPA rates); products must meet regulatory standards (Equity Release Council membership recommended); requires mental capacity at the time of application; (3) FAMILY CONTRIBUTION: family members pay care costs directly (effectively a loan to the estate, or a gift). This preserves the property but requires family to have sufficient capital; any loan should be properly documented to protect the estate and avoid family disputes; (4) ANNUITY / IMMEDIATE NEEDS ANNUITY (INA): a lump sum paid to an insurance company that then pays the care home fees for life, regardless of how long the person lives. Expensive upfront but removes the risk of running out of money. Payments are tax-free if paid directly to the care home (ITTOIA 2005 s.725). Useful for very elderly people with significant assets and high care costs; (5) SHOULD YOU USE A DPA: a DPA is most useful where: (a) The person wants to remain in a specific care home while the family decides what to do with the property; (b) The property market is rising and an immediate sale would not maximise value; (c) A qualifying occupier (elderly relative; disabled person) remains in the property; (d) The family is dealing with competing interests and a sale in the short term would cause disproportionate disruption. It is NOT always advantageous — the compound interest means the total cost of care can be higher with a DPA than if the property was sold promptly.