Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/money/article/a657962
Government extends inheritance tax to pay for long-term care
More people will pay inheritance tax after they die as the government looks for money to pay for its reforms of long-term care.
by Michelle McGagh on Feb 11, 2013 at 11:10
The government plans to increase the number of people who pay inheritance tax (IHT) after they die in order to pay for the cost of its long-term care reforms.
The issue of how to cover the cost of long-term care of the elderly and vulnerable has been a challenge for the coalition government, which commissioned economist Andrew Dilnot to find a solution.
The Dilnot Review recommended placing an upper limit on the cost of care for individuals at £50,000 with the state picking up the rest of the bill. However, this proposal would not cover the 'hotel' costs of living in a care home, just the medical and care costs incurred by an individual.
The level of the cap will be announced today and is expected to be put at £61,000, which is above the ceiling suggested by Dilnot. Implementing the care reforms will cost an estimated £2 billion a year.
In order to pay for the bill the government is expected to freeze the threshold at which a deceased asset's pay IHT. This is currently set at £325,000 for an individual, or £650,000 per couple. Freezing the threshold for three years will increase the number of people paying 'death duty'. The decision breaks a pledge by chancellor George Osborne in his Autumn Statement before Christmas that the IHT threshold would increase at a sub-inflation level of 1%.
Health minister Jeremy Hunt said: ‘By setting an upper limit to how much people have to pay, then it makes it possible for insurance companies to offer policies for people to have options on their pensions, so that anything you have to pay under the cap is covered.’
Not all people will have to pay for care, even up to the cap, as Dilnot also recommended a means-tested threshold of £100,000. Currently, the state pays for all your care only if you have assets under £23,250. This will be increased to around £123,000 by the time Dilnot’s proposals are put in place in around three years' time.
Pension expert Ros Altmann said: ‘Ultimately what is far more important than the actual cap is the increase in the current ludicrously low £23,250 means-test limit,’ she said.
‘Anyone with assets above this level has to pay for the full cost of their care, which means everyone who owns their own home receives no help with their social care costs until almost all their life savings have been exhausted. This is clearly unfair.
‘Under the new system, anyone whose assets are worth less than £100,000 – which will be uprated to £123,000 or so by the time the new system starts – will have help. That means those who have only a house and little other assets will receive help, unless they live in the most expensive parts of the country.’
More about this:
More from us
- Long-term care: are you paying for it twice?
- Forget the cap, here's the truly frightening cost of long-term care
- Impose a death tax to pay for Dilnot care reform, says MP
- Health minister confirms care fees cap will go ahead
- My day at a care home: the expensive reality
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add email@example.com to your safe senders list so we don't get junked.
Latest from Investment Basics
by Gavin Lumsden on Jun 29, 2016 at 15:23