Conservative manifesto: Is the cost of living now more than the cost of dying?
The question of funding care for the elderly was welcome among the five 'giant challenges' at the centre of Theresa May's speech launching the Conservative Party manifesto. This issue has been overlooked for too long (although May now appears to be backtracking). Whether the proposed solution is the right one or not is another matter.
The Conservatives have rejected Sir Andrew Dilnot's recommendation of a cap of £72,000 on care costs funded by the patient, with the balance paid by the state. Sir Andrew's plan would have meant the risk (of significant care fees costs eroding the value of a person's assets) being transferred from the person to the state. It seems only fair that the risk of life's lottery is spread between us all. The average cost of self-funded care is now £36,400 p.a. But who knows what care they will need?
The proposal changes the cap (of £72,000) to a floor (of £100,000). The family can keep £100,000; the rest of a person's possessions, including the value of their home, must fund whatever care they need that the NHS will not provide. Significantly, the house will be taken into account going forward, if the proposal becomes law, even if the patient is still living there. This has not been the case until now. Costs will be recouped by the state in due course from the sale of the house. At this point, those with assets in excess of this sum understandably object. Why should hard workers who have saved instead of spending be penalised in this way?
Our recent blog Care home fees: can costs be avoided, set out the background.
The announcement hits particularly hard on the back of Dementia Awareness week. In a letter to the Times (19.5.2017), the Alzheimers Society recently wrote "In the lottery of life, people with dementia remain the principal victims, forced to spend hundreds of thousands of pounds on care – unlike those who develop cancer, heart disease or diabetes."
It can hardly be said aloud, but more and more people are asking the question: "Is the cost of old age really worth it?" These are questions for the theologian and philosopher rather than the legal practitioner – but the Conservative proposal has just amplified the question.
What a lawyer can do is compare the proposal to the other tax collected on death: inheritance tax. The result is not encouraging.
- Inheritance tax is never higher than 40%. The care fees proposal may cost up to 100%.
- The care fees proposal allows you to keep £100,000. But inheritance tax only kicks in after the first £325,000 of assets – or £1m if you are married and qualify for the full residence nil rate band.
- Tax laws are supposed to be fair and certain, to allow a person to plan their affairs. The care fees proposal is anything but fair and certain.
What then should we be guarding against? It is a fair question. As always, it appears to be those in the large middle wealth group who will be hardest hit.
The debate is welcome and overdue. It is indeed a 'giant challenge'. Of the options of voluntary insurance, increasing tax on income and taxing wealth, the Conservatives have committed themselves to the last of these. The Liberal Democrats prefer the second one. Whichever route was chosen was always going to be controversial.
Those who have taken the risk of giving assets or their home to their children may be feeling better already with this announcement. Trusts are often a good solution, but continue to be seen as fair game for additional taxation. Perhaps SKI-ing (Spending the Kids' Inheritance) will gain in popularity. It somehow does not seem so expensive any more. But, you should be sure not to make unwise decisions to divest of assets, leaving you vulnerable at a time when you need the most support.
If you have any queries or would like to discuss care home fees and how to plan effectively for your family, please contact James Greig or another member of the Succession and tax team.