Immediate needs annuities for care costs

A care annuity, usually called an immediate needs annuity, is an insurance product you buy with a single lump sum that then pays a guaranteed income for life towards the cost of care. If the payments go directly to a registered care provider, they are free of income tax. It can remove the worry of savings running out, but it’s a big, usually irreversible decision that needs specialist regulated advice.

At a glance

• You pay a one-off lump sum; the insurer pays a regular income for the rest of your life.
• Payments made directly to a CQC-registered care provider (or a council) are free of income tax (HMRC).
• The price depends largely on the insurer’s view of life expectancy, based on your health.
• Selling and advising on these annuities is regulated by the FCA; get advice from a specialist later-life adviser.
• They can fund care at home as well as in a care home.

How does an immediate needs annuity work?

An immediate needs annuity is designed for people who already need care, rather than as a way of planning years ahead. The basic steps are:

1. You work out the gap between your income and the cost of your care.
2. A specialist adviser gets quotes from insurers for an income to cover some or all of that gap.
3. The insurer assesses your health and life expectancy, usually using medical information.
4. You pay the lump sum (the premium).
5. The insurer pays a fixed income, normally every month, for as long as you live.

The insurer takes on the risk of you living longer than expected. If you live a long time, the annuity can pay out far more than it cost. If you die soon after buying it, much of the lump sum may be lost unless you bought protection.

What affects the price?

The main factor is the insurer’s assessment of life expectancy. Other factors include:

• the size of the income you want;
• whether the income increases each year (for example, by a fixed percentage) to keep pace with rising care fees;
• whether you add capital protection, which returns part of the premium to your estate if you die early;
• interest rates when you buy.

Because the price depends on individual health, there are no standard prices. Only a regulated adviser can get real quotes.

How is a care annuity taxed?

Tax treatment is one of the main attractions:

• Paid directly to a registered care provider: payments are free of income tax where they go directly to a care provider registered with CQC in England, or to a local authority, for the insured person’s care (ITTOIA 2005 s725; HMRC manual IPTM6210).
• Paid to you: if payments are made to the person themselves, the income element is taxable (HMRC manual IPTM6220).

So, for care at home, it matters that the provider is CQC-registered and that payments go straight to them. Care from a CQC-registered provider is also exempt from VAT (HMRC VAT Notice 701/2).

Can you use a care annuity for home care?

Yes. Immediate needs annuities aren’t only for care homes. They can fund home care or live-in care, as long as tax-free payments go to a registered provider. As of 2026, typical private prices in England are:

Sources vary, and prices depend on needs, provider and region — London and the South East cost more than the North East, for example. Care needs also tend to increase over time, so an adviser will ask how your care might change, and whether an escalating income is worth the higher cost. Use our home care cost calculator for an estimate. Local guides: London home care costs | London live-in care costs.

What are the pros and cons?

Who might consider a care annuity?

It may be worth exploring if:

• you’re paying for care yourself with significant savings or assets;
• care needs are expected to continue long term;
• you want certainty and to protect an inheritance;
• you have income, such as a pension or Attendance Allowance, that covers part of the cost.

It may be less suitable if your savings are close to the council’s upper capital limit of £23,250 (2026/27), because you may soon qualify for council help anyway. Also check whether your care should be funded by the NHS instead. If your needs are mainly health-related, NHS Continuing Healthcare pays in full and isn’t means-tested. See NHS Continuing Healthcare at home.

What to check before buying

• Get a needs assessment first. It clarifies what care is needed and whether the council or NHS should contribute.
• Claim non-means-tested benefits. Attendance Allowance pays £76.70 or £114.60 a week in 2026/27 (DWP), which reduces the gap an annuity needs to fill.
• Remember the home is disregarded for home care. For care at home, the value of the house you live in isn’t counted in the council’s means test.
• Use a specialist regulated adviser. Advice on long-term care products must come from an adviser with the right qualifications. MoneyHelper says specialist care fees advisers are regulated by the FCA, and lists the Society of Later Life Advisers (SOLLA) as one directory of accredited advisers.
• Consider power of attorney. If your parent may lose capacity, a property and financial affairs LPA lets someone act for them. Registration costs £92 per LPA.
• Compare alternatives, such as using savings directly or equity release.

Our guide to self-funding care covers other ways to plan, and our pillar guide to paying for home care sets out every funding route.

Frequently asked questions

What is a care annuity?

A care annuity, or immediate needs annuity, is a product bought with a one-off lump sum that pays a guaranteed income for life towards care costs. It’s usually bought by people who already need care. Payments made directly to a CQC-registered care provider are free of income tax.

Are care annuity payments taxable?

Not if they’re paid directly to a care provider registered with CQC in England, or to a local authority, for the insured person’s care. HMRC treats these as tax-free. If payments are made to the person instead, the income element is taxable. Check the payment arrangements with your adviser.

Can I get my money back from a care annuity?

Usually not. Once bought, an immediate needs annuity generally can’t be cancelled or cashed in. If you die soon after buying one, the lump sum may be lost unless you paid extra for capital protection, which returns part of it to your estate. This is why specialist advice is essential.

How much does an immediate needs annuity cost?

There’s no standard price. The cost depends mostly on the insurer’s view of life expectancy, based on health, as well as the income needed, whether it rises each year, whether capital protection is added, and interest rates. A regulated adviser can obtain personalised quotes.

Can a care annuity pay for care at home?

Yes. Immediate needs annuities can fund home care and live-in care as well as care homes. To keep payments tax-free, they must go directly to a CQC-registered care provider or a local authority, so check the home care provider’s registration before setting up the plan.

Sources

• HMRC IPTM6210: annuities paid to care providers (GOV.UK)
• HMRC IPTM6220: annuities paid to the insured person (GOV.UK)
• Income Tax (Trading and Other Income) Act 2005, Part 6, Chapter 7 (legislation.gov.uk)
• HMRC VAT Notice 701/2 (GOV.UK)
• DHSC social care charging circular 2026 to 2027 (GOV.UK)
• DWP benefit and pension rates 2026 to 2027 (GOV.UK)
• GOV.UK: register a lasting power of attorney
• MoneyHelper: what is an immediate needs annuity?
• MoneyHelper: get financial advice on funding long-term care

This guide is general information, not financial, legal or medical advice. Last reviewed September 2026.

This guide is general information about care in England, not legal, medical or financial advice. Rules and rates change; check with your council or an adviser before making decisions.