Care home fees under the microscope

Burton Sweet

Burton Sweet’s Rachel Finch puts the hot topic of care home fees under the microscope.

As the general population’s life expectancy is increasing, so too are the demands on the state to provide continuing health care and support for our aging nation.

There have been lengthy debates and protests against the current situation, where the individual is required to pay for the full cost of their care home fees if their accumulated capital wealth is above £23,250 (this includes the value of the family home, bank balances and any other worldwide assets).

Age Concern lobbying

It is hoped by lobbyist groups, including Age Concern that this threshold will be increased to £100,000 to allow individuals to provide for their loved ones once they have passed.

Local Authorities use means rated tests to determine whether an individual should pay. But any individual who owns a property will inevitably fall into the category of people who will be required to pay at the full rate.

Fortunately for some families, the immediate charge can be avoided if one of the following applies:

• A family member >60 years of age is living in the property
• A family member with dependent children is living in the property
• Your spouse or partner is living in the property

Common misconception

A common misconception is that gifting an asset releases it from the estate (for Inheritance Tax purposes, and care home fees). The reality is that if the individual gifting the asset retains a benefit from it (ie remains living in a gifted property) they must pay current market rent to the new owner; otherwise it remains within the charge to Inheritance tax.

This however does not necessarily remove it from the individual’s capital assets as determined by the local authority, who seek to include all capital assets, gifted or otherwise, that are done so specifically for the avoidance of care home fees.

There must therefore be genuine reasons for gifting an asset for it to remain outside the scope of the local authority to pay for care home fees.

When considering the possibility of providing for care home fees, one should consider the bigger picture and evaluate whether perhaps there is more reason to plan for Inheritance Tax over care home fees; Often planning for one means accepting liability to the other.

Inheritance tax planning

If you have a substantial estate, it may be more beneficial to think about Inheritance Tax planning instead, as there is a 40% tax charge on worldwide assets over the Nil Rate Band (£325,000).

One thing that everyone must consider is the morbid fact that death is a certainty, unlike the requirement for a care home which is not, in fact; only approximately 20% of the population will require the facilities of a care home at some point in their life.

For couples, a planning opportunity is to set up a will trust so that on the first death, the 50% share is held in trust rather than passing to the surviving spouse, who, would otherwise be assessed on the full value of the property should a care home be required.

Instead, the property is accepted as having no value to a third party as 50% is already owned by the trust.

There is argument that it is otherwise unfair on current taxpayers to provide the cost of care home fees, however, for the time being whilst the capital assets de minimis limit remains so low, it is essential for individuals to consider the possibility of requiring the facilities of a care home and the effect it will have on loved ones and your estate.

Specialist planning division

Burton Sweet have a specialist Trust and Estate planning division who will be happy to go over these points in specific detail to ensure that all aspects of bloodline planning have been considered and to minimise the impact of having to provide for care home fees should it be required.

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