Government proposes “Care ISA” to pay for long term care costs
The government has recently proposed a new form of ISA which will be tailored to pay for elder care. It would be exempt from inheritance tax (IHT), and is an attempt to solve the social care crisis in the UK.
Its aim is to encourage people to hold onto their savings in their old age and to reduce financial stress when they are pensioners.
This Care ISA would be passed on without triggering IHT and would hold its own allowance, which will in theory reflect the cost of long-term care for the elderly. With the costs of care for the elderly rising, and care homes becoming increasingly expensive, it is a concern for the government.
One of the main reasons that the Care ISA is being pushed, is that its free from tax, so in the event of death you and your beneficiaries would keep all the interest you have earnt.
Revealed last weekend in the Sunday Telegraph, details of the conditions included that the ISA money would form part of the deceased estate, which means that if its left to anyone other than the spouse, it could be subject to IHT – which is estimated to be 40% on anything above £325K.
If you have large sums of money away in ISAs, and the Care ISA is not in place to protect that money against IHT, it encourages you to spend what you have in savings before you die to avoid losing your money to IHT.
Spending the money you have saved would decrease the amount of money you have to fall back on in the event that you need care or funding for nursing homes – this is one of the key elements in the social care crisis.
Despite the appealing news of IHT free money, it would in fact only benefit the 5-10% people who have large sums and a lot of savings.
It has been dismissed by members who are involved in the Commons Health and Social Care Committee, as it only benefits those with over £325K in savings.
Further to this, its doubles for couples, and for those families who choose to gift their properties to family members.
The main issues that lay within the new proposal are that this solution will only benefit wealthier