Dementia Tax and IHT planning
During the 2017 General Election, there was extensive media coverage of the Conservative Party Manifesto, particularly around the announcement and subsequent U-turn on the so-called ‘Dementia Tax’. Although the Dementia Tax was not strictly a tax, it highlighted the concerns and confusion surrounding social care for our ageing population. For many families, paying for social care has become more important than Inheritance Tax.
What are the current rules on care costs?
If a local authority arranges for an individual to enter a care home on a permanent basis, the individual will be means tested to see whether or not they should make a contribution towards the cost of their care. Under the current rules, if an individual’s capital adds up to more than £23,250, the local authority may assess them as being able to meet the full cost of their care.
The Coalition Government published a White Paper on the reform of adult social care in July 2012. This proposed to implement the recommendations contained in the Commission on the Funding of Care and Support (known as the Dilnot Commission). The Coalition Government proposed a cap on the maximum that an individual or family would be required to contribute. A figure of £76,000 was suggested to be introduced in 2016 but the Conservative Government elected in 2015 deferred this until 2020 at the earliest.
In their 2017 Election Manifesto, the Conservative party announced that the £23,250 threshold would be raised to £100,000 and would also be the threshold for assessing whether the local authority would pick up the bill for Care in the Community. There was, however, no mention of any cap on social care costs. This resulted in a very rapid U-turn following the launch of the manifesto. We are now told that there will be yet another Green Paper to consider a cap on care fees. This issue will need to be closely monitored as it will have a significant impact on any planning undertaken.
Many people want to pass on savings or other capital to children or others during their lifetime. But Inheritance tax (IHT) planning, such as transferring an asset out of your name, can still be taken into account when being means tested. Both the local authority and the Pension Service can, when assessing a resident’s eligibility for assistance, look for evidence of deliberate, or intentional, deprivation of capital such as a property transfer. Deliberate deprivation occurs when an individual transfers an asset out of his or her possession to put him or herself in a better position regarding the means test for care home accommodation.
This is a complex matter so please contact our team on 01903 234094 to discuss the implications of ‘dementia tax’ for you and your family’s assets.