Protect the inheritance!

Social Care

In February 2013 the Government published the details of its plans to reform the state subsidy for long-term care of the elderly in England. These plans are part of the Care Bill published on 10th May.

1. A cap of £75,000 on the cost of care anyone would be expected to pay.

2. An increase to £123,000 (from £23,250) in the amount of savings you can have and still get help with the cost of care.

  1. A guarantee that no-one has to sell their home in their lifetime to pay for care

The scheme will cost an extra £1 billion a year by 2020 and help an extra 100,000 richer people and their heirs with the cost of long term care in old age.

£75,000 only covers the cost of the care given in the residential care home. It does not cover hotel costs—accommodation and food. That is capped at £12,000 a year. Those have to be met even when the Government meets the cost of the care itself.

£75,000 is not what you spend. It is the amount of care that could be bought at the rate paid by the local authority. So  if a local authority was willing to pay £430 a week for the care then £75,000 would buy about 175 weeks of care. To reach the cap you would have to buy 175 weeks of care. To buy that privately the cost would be around £530 a week. For the cap to come into play you would have to spend 175 weeks at £530 – a total of  £92,750 on care. In addition throughout the 175 weeks you would have spent £12,000 a year on hotel costs, another £39,600. So you would have paid out £132,350 before the ‘£75,000’ cap was reached. After that the £12,000 a year hotel costs would continue. Because the cost of care varies throughout England, the actual cost that has to be met before the cap is reached will different in every local authority area.

If you reached the cap in your £530 a week care home the council would still only pay £430 a week. If the home refused to renegotiate a lower figure then you have to find another £100 a week towards their costs. At the moment a top up cannot be paid by the resident themselves, only by relatives or friends. Care Minister Norman Lamb has indicated that rule will be changed to allow the resident to pay. With the hotel charges that would mean an annual cost of £17,200 even after the cap was hit.

The £123,000 savings limit means that anyone who has capital (including an empty home) worth more will have to pay all of their care home costs, until of course the cap is reached. Below that figure a sliding scale will determine the contribution they make. Someone with £100,000 savings would have to pay £330 a week towards their fees. Someone with £50,000 would have to pay £130 a week. When your savings fall below £17,500 the council pays the whole bill and the income means test takes all your income except £23.50 a week personal expenses.

Selling Your Home

This claim “Your home is safe” is disingenuous. No-one can be forced to sell their home to pay for their care now. Some of the 19,000 who do so each year are deceived into it by local councils who tell them they must. But some use the value of their home to pay for better care than the local council will give them.

Instead of selling your home you can enter into a deferred payment arrangement, which was introduced by the Labour Government in October 2001. It was “to ensure that people…are not forced to sell their homes as soon as they enter residential care.” It would “help…people who do not want to have to sell their homes in their lifetimes to pay for their care by making loans more widely available”.

In 2009 the Department of Health issued a circular LAC (DH)(2009)3 which said Ministers expected councils to offer deferred payment schemes and “it is the Department’s view that if a local authority were to have a policy of never exercising its discretionary powers to make deferrals, it is likely the courts would find this to be unlawful.”

8,500 people are currently in such schemes with a total debt of £197 million – an average of £23,000 each. Anyone who insists on a deferred payment arrangement will get one. But even if you don’t all you have to do is refuse to pay. The council still has to provide care and take a charge against an empty home so the bill is paid after death – s.22 of the Health and Social Services and Social Security Adjudications Act 1983 (HASSASSA).

In either case no interest is charged on the debt while the resident is in care and that concession lasts for an extra 56 days after death with a deferred payment scheme.

Those are the rules now and they apply throughout the UK. The Government plans to replace them in England by a universal deferred payment scheme that local councils will have a legal duty to apply. Under the new scheme interest will be charged on the debt from the moment it begins. And the backstop provision under HASSASSA will be repealed. That new scheme will begin in April 2015, two years before the other reforms.

How is it paid for?

The extra cost of the new scheme will be around£1 billion a year in 2019/20 rising to almost £2 billion by 2025/26. It will be paid for by two sources of money.

  1. The Chancellor has reversed a promised rise in the threshold at which inheritance tax becomes payable. It will now not rise in 2015/16 but stay frozen at £325,000 until the end of 2017/18. That will pay for about a fifth of the cost—an extra tax of £1600 on estates in 2015/16 and £7120 or more by 2019/20.

  2. The other four fifths will come from the extra revenue generated by changes to National Insurance.

The changes to inheritance tax and national insurance apply throughout the UK. So unless some specific provision is made, the tax generated from Scotland, Wales, and Northern Ireland will be used to fund the care reform package in England.

Who Benefits?

The new expenditure will go mainly to the richest—and their children. Department of Health analysis shows that in 2025/26 the extra cost will be nearly £2 billion and of that about £710m will go to the richest fifth of the population and an extra £640m to the second richest fifth. So that richest 40% of people will get more than two thirds of the extra money. About £420m extra will go to the middle fifth, and £210 million to the second to poorest fifth. That 40% of the population get just under a third of the extra subsidy between them. The poorest fifth will get no more money spent – their care costs are met in full already.

The new scheme will still be a highly complex mixture of a means-test on income and assets topped off by a cap fixed in terms of care provided which will differ in amount in every local authority area. The biggest share of the extra cost of the new scheme will go to the better off – more than a third of it will go to the richest 20% of those in care. The new scheme for protecting the value of a home will cost more than the present scheme.

Everyone (including self-funders) will need to be assessed by the local council and the costs of the care that the LA would have provided estimated, in order to work out when the £75K ‘cap’ is reached, even if they never benefit.

This article is based on Paul Lewis’s excellent  Money blog.