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Gov’t plans IHT freeze to fund £75,000 care cost cap

by Daniel Grote on Feb 11, 2013 at 07:30

Gov’t plans IHT freeze to fund £75,000 care cost cap

The government plans to freeze the inheritance tax threshold at £325,000 for three years from 2015 to fund a £75,000 cap on long-term care costs, according to reports.

The move comes despite chancellor George Osborne’s Autumn Statement pledge to raise the threshold by 1% to £329,000 for individuals, and £658,000 for couples, in 2015/16.

The care cost cap, expected to be announced today, will be implemented from 2017, although it will not apply to accommodation costs.

Under the government’s care reform plans, those with assets of up to £123,000 will qualify for some state help. Currently the limit is set at £23,250.

Health minister Jeremy Hunt (pictured) told the BBC: ‘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.’

Then cap is higher than the £35,000 level proposed by economist Andrew Dilnot, who was tasked by the government with producing a report into long-term care reform, after the Treasury baulked at the £2 billion annual cost of implementing those measures.

24 comments so far. Why not have your say?

Charles Rickards

Feb 11, 2013 at 09:17

I think using a tax from a person's estate after they have died is a great way of raising funds to pay for services. However, it may be fairer to replace the Nil Rate Band with a 5 or 10% band, so that all estates can contribute. Whilst I appreciate the cost of collection argument, that remains the same for other forms of taxation.

Has anyone worked out how much a single flat rate tax rate of 10% across all taxation would raise? It would certainly save on confusion and would make the UK a very attractive place to pay tax, with all the economic benefits that may bring to the UK.

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Sam De Zoysa

Feb 11, 2013 at 09:22

I read elsewhere that hotel costs would be capped at £12k. Capping hotel costs, is akin to rent control. Care home providers are going to either be more reluctant to take on new residents or considerably more choosy about the financial status of an applicant.

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Glint Thrust via mobile

Feb 11, 2013 at 09:29

Why should the taxpayer pay for people to inherit their parents' houses?

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Fair's Fair

Feb 11, 2013 at 09:42

@ Glint Thrust

So why on earth should those of us who have done without new cars and holidays each year, and saved all our lives to be able to pass on something to our children have to pay for those who have blown everything they've ever earned during their lifetime on new cars and holidays enjoying themselves, only to have nothing left in their later years and so need to be handed everything on a plate - all financed by imposing taxes on those who have been far more careful with their money. Where's the fairness in that?

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Sam Caunt

Feb 11, 2013 at 09:42

While I agree that it is odd that the tax payer pays for people to inherit their parent's home, a bit like the pension savings arguement, why should people who have saved be treated differently from those who have not. If you spend and enjoy life and do not consider it important to save for retirement or care home fees why should you get help from the tax payer and those who earn just are much but take a more responsible approach.

Not an easy solution.

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Michael Brown

Feb 11, 2013 at 09:47

Glint

There are many cases where the house and or assets go to a charity of some sort. The people of the generation arriving at this point in their lives now are usually of the generation of saving and passing on assets. After all the assets have usually had the "tax" removed from the assets whilst they were growing?

Unfortunately there are many, many younger people who are relying on their parents house to fund their later life!

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P A Williams

Feb 11, 2013 at 09:55

Why should anyone who has paid tax all their lives but managed to save enough to buy their own home (because they did'nt squander their income) not be allowed to pass this home on to their children. Inheritance tax is a tax on savers and prudent hard working people. It is insidious and a disincentive to anyone who wants a degree of independence and decency.

Why should anyone who has paid tax on their earnings all their lives be forced to subsidise and pay, out of their inheritance, for those people in old age who have chosen to just spend all their money - this is what this government has now done with this legislation. This is deeply unjust and unfair and when people finally realise what a dirty trick this is it will rebound on this administration.

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Keith Cobby

Feb 11, 2013 at 09:56

The problem here, as always, is means-testing. If you have plenty of money you are OK. If you have no money you are OK (for care). It is always the people in the middle who put some aside who are disadvantaged.

Originally higher-rate tax and IHT only affected the wealthy.

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Michael Brown

Feb 11, 2013 at 10:27

@ PAW

I can only say that now they will only lose a max of £150k where as before it was nearly everything?

However, the question that needs to be asked is what is the average expenditure of the person when there is a need for care cost?

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Charles Rickards

Feb 11, 2013 at 10:37

Tax is never fair to all and never will be, but having all members of society making a contribution, no matter how small, does in my mind seem fairer.

We have for so long been a nanny state, which provides for those without, that the UK is seen as a free meal ticket by many and there in lies the problem for the government. How do they remove the reliance on state benefits? Or do we as tax payers accept it and buy in to it and pay what is required, so that there is a greater degree of financial equality?

A socially aware and caring society looks after those less fortunate, however, it also provides an incentive to some to do nothing to take responsibility for their own destiny.

An over complicated Tax system, allows those who can afford to take mitigation advice to legitimately pay less tax and always has greatest burden on the taxpayer caught in the middle.

Time to change the tax rules across the board. KISS! Keep it simple stupid!

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Hickky

Feb 11, 2013 at 10:55

A great example of political spin over reality. By not raising the nil rate band the treasury estimate the tax revenue from IHT will increase. With house prices static, returns on savings not beating inflation thus requiring capital to be spent and if investment is needed for income, DGTs or other forms of IHT will be promoted more forcefully by advisers, especially as nil rate bands are frozen, how can they be confident that this tax increase will occur?

The average time in resedential care is two years, so the caps cannot possably be reached for the majority of sufferers. for at least 6 years, remembering it is only the nursing costs that are covered, not the 'hotel' costs.

Still, in insurance companies today, various committees will be set up to see how to formulate policies that can be sold to the elderly to cover potential liabilities. Lets hope only those with Long Term care qualifications will be permitted to sell them.

If total assets are below £123,000, then the government will cover all. Therefore perhaps the discressionary gift trust on first death that reduces the inherited house value, combined with first life second death capital investment bonds (presumably not counted still) and perhaps gifted equity release could reduce survivors assets below this figure? What solutions do you all feel will be de rigeur in the coming years?

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easy life

Feb 11, 2013 at 11:00

This is a con as far as I can see - care costs are capped at £75,000 however as far as I understand this does not include accommodation and food etc. which is the majority of the cost! Also currently as I understand it if medical or nursing assistance is required the state supports this. So what does the £75,000 cap include? It would be interesting to see data of how many people have care costs over £75000.

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Anitaki

Feb 11, 2013 at 11:04

We now live in a polarised society. It is nothing to do with educational qualifications, as everyone seems to leave education with an "ology" of some description.

The polarisation comes with those who inherit property and those who don't.

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Michael Brown

Feb 11, 2013 at 11:18

@ easy life

It is not a con and your first statement is incorrect. The care costs, apart from nursing are paid for by the individual whether you are in a care home or not. Care home costs cover everything down to a TV licence.

If the patient requires nursing costs that have been agreed upon after an assesment the state does indeed cover this. All drugs over the age of 65 are free.

The usual costs of a care home are in my area about £35k per annum. Therefore in just over 2 years the state will then pick up the tab.

Unfortunately the care home costs go up each year and the issue is the amount that this does. However, one has to consider the care given for the costs involved.

As HIKKY mentions in an earlier blog around two years is normal for a care home. I usually find that this is drastically reduced if left to later in the "illness care" cycle.

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Mike Morley via mobile

Feb 11, 2013 at 11:56

@Michael Brown - don't think you have quite grasped the essence of this as of the £35,000 that you quote as the average cost of a home in your area a good part is for hotel accommodation. The cost of this is likely to be at least half of the total and will have to be funded outside the £75K cap. I believe that the average stay is for around four years or so in which case the cap will barely come into play.

A more fundamental change is the considerable increase from £23K to £123K of the maximum funds that can be retained for state funding to kick in.

I am sure that as usual the devil will be in the detail and one thing that does seem odd is that we can afford the many billions of pounds of overseas aid but cannot find the one or two billion needed to fund proper care in old age in the UK.

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Sam De Zoysa

Feb 11, 2013 at 12:10

@Mike Morley. Later life care won't be a couple of billion. With rising life expectancy such costs will go through the roof. It will make unfunded public sector pension liabilities look like loose change.

I certainly agree that the taxpayer should not be on the hook for such costs. Having to sell an asset to fund ones care is undoubtedly a tragedy but that's all. The taxpayer cannot (and must not) backstop everyone's lack of planning.

Give the adviser community the tools and the incentive and we'll deal with a good chunk of those residents. Let's face it the wealthier in society are longer lived and thus are more likely to benefit from the various caps that are proposed.

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Michael Brown

Feb 11, 2013 at 12:12

@ Mike Morley

We disagree on your first statement somewhat.

However, the other statements I can wholly agree with. Albeit in the Conservative manifesto was the commitment to the overseas aid to which I suppose they should be commended. However, I cannot recall anything about Gay marriage in the manifesto? It seems that they only use the manifesto when it suits?

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Hickky

Feb 11, 2013 at 12:23

@ Michael Brown

Just be pleased the Gay marriage proposal it to be implemented. It doubles your chance!

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Mike Morley

Feb 11, 2013 at 12:28

@ Hicky as the late Bernard Manning said - "It's bad enough being turned down by a woman"!

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Michael Brown

Feb 11, 2013 at 12:33

@Hikky

Thanks but not my camp actually!!

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Hickky

Feb 11, 2013 at 12:44

@ Michael

Ohhh, get you!

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Philip Wise

Feb 11, 2013 at 13:08

As far as I can see nobody has actually announced anything. They've just said that they are going to announce something. The government used the same strategy to communicate the state pension changes. They gave some sound bites, which everyone argued over, then announced the real stuff a bit later, by which time the media had moved on to something else.

As we all know now, the "flat rate" state pension is anything but; I imagine the "care cost cap" will be something completely different too. But by the time they tell us the detail, and that it's only something they might get round to one day (see the flat rate state pension), we'll all be on to something else and nobody will notice.

Time and time again, the facts get swamped by sound bites. Quite clever really - a sign of the times (or just the fact that I am getting old!)

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Sam De Zoysa

Feb 11, 2013 at 13:16

@ Philip Wise

Sorry Philip, It might be a bit of both!

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Usually found sitting on the fence

Feb 11, 2013 at 13:25

@ Sam De Zoysa - I think you are scare mongering. While life expectancy is on the increase, does this actually mean that there will be a longer time needed in care? Some perhaps, but I doubt it will lead to a higher cost in itself. More likely to see the costs increasing as care home providers start hiking their charges up to get a bigger slice of the Govt pie.

@ Michael and Mike - You cannot both be right. I think it is more in line with only care is included and so rent will fall under the current rules. In the few cases I know, nursing care costs around £500 per week, so nearly 3 years before this change takes effect on the pensioner. Someone suggested the average is 4 years, so, providing that is all nursing care,just over a year assisted.

@ PA Williams - While I do not totally disagree with what you are saying, I do think it is a little narrow in view. Consider that if all UK people paid their bills first, saved the future second and then bought luxury items with disposable income... The UK economy would probably collapse. So while those that spend for a good life now may seem infuriating, they are actually helping keep the grease in the economy to keep it moving along. Don't get me wrong, they are selfish and thoughtless (and I may well be one of them, from time to time), but the VAT money coming in the goods being sold, the jobs being created, the.... You also need to consider the individual that earns a pittance, spends little on luxury and contributes to society in other ways, for example a hospital porter (don't know what they earn, making an assumption, so apologies to any hospital porters that may be offended etc), do they not deserve a comfortable later life and are they really going to be able to afford it without some assistance?

@ Charles Rickards - Once you start charging all and sundry (from Nil IHT to 5/10%) it would potentially be a nightmare for the average individual to understand. Their only asset may be their home, and in order to meet the 5% be forced to sell at an already distressing time. Or they may turn to some scam to get the money quickly for fear of losing everything. At least if you are amongst the wealthy, there is a greater chance of having access to an accountant, family lawyer or financial adviser.

ALL - The tax system needs a complete overhaul, but with Govt's lasting 5 years there is no political drive to be the party that starts the ball rolling...

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