- Tax system unfair to people needing care as they pay Capital Gains Tax, while those not needing care can pass on assets free of this tax
Whilst many people plan to ensure they limit their exposure to Inheritance Tax, most of the population don’t realise that funding long term care could, in effect, be a “100% tax” on people’s estates over the current derisory limit of £23,250 warns Saga’s Director General, Dr Ros Altmann.
Dr Altmann says, “The current system is unfair and unnecessarily complicated. Whilst successive governments have recognised the scale of the problem and the unfairness in the system, they have all failed to tackle the problem head on. Choosing instead to commission further reviews which delay the difficult decisions which will have to be made”.
Average nursing home costs in the UK are currently running at more than £36,000 a year, so an estate could soon be depleted to the £23,250 limit. But many people miss out on advice that could save them significant amounts of money, as they do not understand the current complex system of entitlements.
”This is a travesty.” Said Dr Altmann, “Whilst these reviews are ongoing families should have been given clear, unbiased guidance on entitlements and services that could help guide them through what is, in effect, a maze of legislation. Unfortunately for many, they have missed this opportunity. Saga's care funding advice service regularly advises customers of entitlements that the local authority have failed to point out, potentially saving them and their estate thousands of pounds”
In addition to lack of clarity on entitlements and the traumatic decision to have to sell the family home to pay for care, there are also other clear inequalities in the tax treatment of those paying or saving for care. If someone sells investment holdings or a second home to pay for long term care they will be subject to Capital Gains Tax. However, if they die without needing to release capital to pay for care, their assets become part of their estate and are not subject to this tax. Furthermore if their estate is less than £325,000 they are not liable for Inheritance Tax either.
"This is extraordinarily unfair. Those who need care have to pay capital gains tax while those who do not will not necessarily be taxed in this way. We believe that part of the government's review should be about ensuring that we encourage people to fund their care, not penalise them for doing so. These thoughts were detailed in our submission to the call for evidence to the Dilnot commission.
”Allowing individuals to sell assets to pay for care, free of this arbitrarily applied capital gains tax, and giving our younger generations the opportunity to save for care in a tax free environment could encourage a lot more people to save to provide for care.” Dr Altmann said.
Care funding is the next crisis that will hit us after pensions. The costs of future care needs will be enormous and almost no money has been set aside to pay for it.
In its submission to the Dilnot commission Saga points out that there is a huge gap between the estimated 13 per cent annual increase in the supply of care by adult children and the 55 per cent increase in demand for care in our ageing population.
"The mismatch between the supply of familial care and the demand for care is stark, and it is clear that the gap can be bridged only by care being provided from outside the family with all the increase in public and private expenditure that this will entail,” Saga said in its evidence.
“Whatever the commission concludes, an element of means testing is likely to remain and that might still include the value of a person’s house in the calculation. What we are calling for is that the system is made fairer, with better incentives for people to save to cover future care needs; and for better advice and guidance so people can understand the system and are given the opportunity to make alternative arrangements.
Dr Altmann continued, “Having failed to put adequate incentives in place for pension funding, it is essential that we do not make the same mistakes over the huge looming costs of care.”
Saga’s free Care Funding Advice Service will help individuals through the maze. Click here to download a copy
It is an independent, no-obligation service and advisers will analyse an individuals circumstances including their assets and state benefit entitlement to guide them through how to access any additional state support to which they are entitled.
Notes to Editors
The Commission on Funding of Care and Support was launched in July 2010. It is chaired by Andrew Dilnot with Lord Norman Warner and Dame Jo Williams as fellow Commissioners. It will build on the extensive body of work already done in this area and provide recommendations and advice on how to implement the best option to Government by July 2011.
The nil rate band for Inheritance Tax (IHT) now available cab be shared between spouses. IHT now mainly applies to couples with estates worth over £650,000, or individuals with over £325,000.
For more information please contact the Saga Press Office on 01303 771529