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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

Government extends inheritance tax to pay for long-term care

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.’

18 comments so far. Why not have your say?

White Stick follower

Feb 11, 2013 at 11:59

More smoke & mirrors, and once again those who have behaved responsibly in life will pay, whilst those who have spent everything in a profligate manner or have lived off of the State (or in reality taxpayers) will be cared & provide for, at no cost to themselves. Do I anticipate coach loads of EU geriatrics arriving here? Quite possibly as long as the weather doesn't deter then of course.

By & large if the government, or more realistically the Treasury recommends something then you may be sure it is good for government, but bad for tax payers.

So the way forward seems to be for me to go out and spend everything, or give lumps of money to my family and hope I survive for 7 years or more. Then all I've got to do is wait for the generous State to keep me - assuming I live long enough to benefit. If I don't then it won't matter to me.

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Mike kemp via mobile

Feb 11, 2013 at 12:38

Just one more broken promise from a discredited Tory (liberal?) government. Here is one Tory who will never vote for them again while they they are associated with the Liberals. Indeed lets rid ourselves of mr Slippery as well. I certainly concur with theWHITE STICK FOLLOWER

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easy life

Feb 11, 2013 at 12:55

Increasing the means test limit to £100k or above is good news however why not make it the same as the IHT personal allowance? would be logical as any money left in the estate is taxed at 40% and if the person going into care has more than the IHT personal allowance they pay the fees!

Otherwise its a con, the cap is almost meaningless as it does not include board and lodging, by far the highest proportion of the costs.

Worse they will 'freeze IHT personal allowance' from now to pay for the cap yet wont introduce the scheme until 2017 plus you will need to have around 5 years in a nursing home before the cap will be effective (if you live that long average is about 2-3 years . so the Government will not payout until 2023 at the earliest!

Just another excuse by Government to raise tax because they believe they can spend our money better than we can. Time for a revolution!

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Anonymous 1 needed this 'off the record'

Feb 11, 2013 at 13:10

Work hard pay NI and taxes and save hard = a pay twice for LTC mug

Work hard pay NI and taxes but save nothing = a pay once for LTC semi-mug

Do nothing, pay nothing, save nothing = a pay nothing for LTC scrounger

This Govt is happy to continue with paying thousands of pounds to fit and healthy adults in work whilst screwing the elderly, the young and the genuine sick

I'm another who will no longer vote Conservative whilst these New Labour vote buying Brownite benefit policies are continued.

Time to get priorities right Cameron because at this rate you won't get another chance!

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Clive B

Feb 11, 2013 at 13:45

@ easy life

"so the Government will not payout until 2023 at the earliest!"

Think you mean until WE (the taxpayer) pay out. Not sure I'm upset that, according to you, I won't be funding yet more people until 2023

"why not make it the same as the IHT personal allowance"

Because there's no reason taxpayers, possibly with a lot less money than £325K, should have to fund somebody who has £325K.

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Rob Walker

Feb 11, 2013 at 16:24

If I have to pay inheritance tax after I die I will be very.......?

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Skint

Feb 11, 2013 at 16:26

@Anonymous 1

You are spot on. We live in a society where the feckless are rewarded at the expence of the hard working. How this is allowed to continue totally baffles me.

I wonder when we will reach the turning point and things will start to be reversed.

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Jon

Feb 11, 2013 at 16:31

Raising the limit on allowed savings is a pretty big jump and will benefit very many who have modest savings, so they will still have something to pay for a few luxuries in their final years.

Freezing IHT from 1% will not make that much difference in the short term as the extra charge will be only 40% x 1% x £325k pa compound. Most of those with assets well above the IHT limit will already have arranged transfers which will limit the IHT in any case, and who cares about a few £k when you are six feet under.

Some contributors never see the positives whatever the Coalition does.

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Martin Drew

Feb 11, 2013 at 16:44

I am confused. If you have been moved in to a home why do you need a house as well?

People should pay for their own care and those that can't should be taken care of, but in a very basic way in as cheap a place as possible, maybe India or the Philippines. Ignore all the bally hoo about being close to family, they should have thought of that before spending their money on holidays abroad etc. Anyway if the family want them close by they can chip in and pay to keep them in the UK.

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Anonymous 2 needed this 'off the record'

Feb 11, 2013 at 17:59

IHT should be increased to £500,000 in the next 3 years.

Help the savers.

You should pay for your care as your are the only person benefiting, perhaps relations.

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Jack Belfitt

Feb 11, 2013 at 20:10

The problem of course is 'Democracy'. Whilst there are millions more of the feckless and irresponsible, than there are of the responsible….Well, what else can be expected? They will naturally vote for the party that compels others to pay for their maintenance. We must not also forget to mention a huge immigrant induction which having been given the opportunity are here to further exploit our welfare system! The Germans have saying which translated reads ‘Opportunity makes thieves’. I reckon that they have got it right! It would therefore suggest that if you have any personal initiative then you should first use it on emigrating and let the politicians personally find the money that they are free to promise otherst!

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Tortoise

Feb 11, 2013 at 20:21

If you have a house and you do not need it, why on earth is it a "scandal" that you sell it to help pay for your long term care needs? Most of the selling price will be previously untaxed gain as a result of the property boom over the last 30 years rather than savings from taxed income. Why do those who say that an iheritance tax free amount of £650,000 for a couple is an attack on the middle classes.? I am middle class myself, a long time qualified accountant, live in a four bed detached house in Berkshire, and am nowhere near this threshold.

However, this year I become a 40% taxpayer with earnings of about 7% of this amount. Is any of one complaining about that??

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easy life

Feb 11, 2013 at 22:38

No problem with paying for my healthcare when I get old. BUT WHY SHOULD I PAY FOR ALL THOSE THAT SPENT THEIR CASH ON HOLIDAYS, BOOZE, CARS ETC! THAT IS THE PROBLEM AND THE UNFAIRNESS THAT NEEDS TO CORRECTED.

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Alan P38

Feb 11, 2013 at 22:45

Why would you want to keep your house when you go into a home?

As someone who has worked hard to pay off their home, saved and may want to leave something for their children, grandchildren - the home is the last legacy. why work that hard in life only to succumb to having to live in a care home when you can't manage at home and have to sell your home to fund it - some people are placed into a home not by their own choice either and there are others that may have other family members leaving in the household. Once forced to sell your home and the funds all gone to meet your care, there is nothing left to pass on.

If you choose to leave in a home and prepared to sell your home to move into a carehome then that would be different.

Raising the cap from £23K to £123K is a step in the right direction especially for those who have worked hard in their life and want to provide to their beneficiaries.

If you've experience having the process of having to pay for care cost yourself for relatives, you'll know how expensive it can get and the stress it can be to find the funds.

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Clive B

Feb 12, 2013 at 10:39

"Raising the cap from £23K to £123K is a step in the right direction especially for those who have worked hard in their life and want to provide to their beneficiaries."

I disagree with that.

Basically, this is a state benefit. I'm a believer in the benefit system, BUT only for those genuinely in need.

Imo, that doesn't include those who have the means to fund themselves - in this case in old age - but would prefer to spend their money on other things, or in this case leave their house to others.

Just because people would prefer to do that doesn't mean it's my job as a taxpayer to pick up their bill.

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Martin Drew

Feb 12, 2013 at 11:31

So much of this argument seems to be based on people wanting to die with money in their bank to leave to their children or other relatives. So they accept the indignity of being in the 21st century equivalent of the Workhouse, i.e. the state is funding or part funding their last few months so they can leave money to their children. Why? Are you saying your children are so incompetent they can't make their own way in this world, like you presumably did? That's a bit insulting isn't it? I just don't get it. If you have money surely your pride would dictate that you use those to fund your care rather than rely on the state.

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The Wills Man

Feb 14, 2013 at 08:55

I am being picky I know - but there is NOT a £650k allowance for couples. It is a claimable allowance.

The executors of the second to die have to prove that the first to die did not give any gifts or money in their Will or the preceding PET years.

I have seen cases where the executors (solicitors) could not do this and IHT had to be paid on what had been a joint estate of <£500k

As to the rights and wrongs of paying for LTC - it should be remembered that average charges amount to >£30k pa. per person - nobody pays that much to live in their own home and therefore it seems unjust to lose the value of your home within a few years when it took decades to buy in the first place. N I was supposed to cover care in old age in the form of a state pension that covered the basic cost of living - it is way short of the amount needed to stay in LTC homes that have been regulated to the point of not being able to offer a basic place to live in your old age.

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Stephen Squires

Sep 22, 2013 at 15:31

The 1946 National Health Service act and all subsequent amendments are being ignored! The law is clear; anyone who is so ill that they require 24/7 ACCESS to health care is entitled to receive ALL their care 'free at the point of need regardless of the ability to pay' This has been confirmed by the courts, notably the 'Coughlan' , 'Grogan' and 'Booker' cases. The LAW says the NHS must pay ALL costs including that of the accommodation required to enable care to be delivered. The Dillnot' preposal are total humbug because there is a far, far simpler solution which would not cost the taxpayer anything! Steve Squires. (Founder nhs Continuing Care Campaign and 'Free nursing Care Forum' )

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