Pictured above: Edward Rees
As the general election looms, the government's proposals for a
10% death tax, levied on the middle classes to service care for the
elderly, has brought fears of financial anguish amongst the 17
million families eligible for the hike.
Families would be forced to pay 10% on estates worth over
£500,000 when relatives die, to service the social care bills
of the nation's elderly. Coupled with existing inheritance tax
rates, the new "death tax" is proving a major point of contention
in the election race.
While not set in stone, last week the government's Health
Secretary, Andy Burnham, refused to rule out the changes, stating
that he is "still debating the options".
Initial proposals would have seen a flat rate £20,000
levied on estates upon death, but outrage from opposition parties
means the government has re-evaluated the idea, while refusing to
discount a compulsory levy based on estate value.
The proposed reforms are designed to end the current lottery
under which some people lose their homes and life savings, if they
spend lengthy periods in residential care. Currently, the average
pensioner can expect to spend £30,000 on care if needed.
In return for the increased taxation, every person over 65 would
be guaranteed a free residential care home place, and Mr Burnham
set out three main options for financing the scheme:
• a 10% levy to be paid from an estate on death;
• means-tested amounts to be paid across the whole of
retirement; or,
• the option of deferring pensions for three years to pay
into a new National Care Service.
Speaking at an Age Concern and Help the Aged conference, Mr
Burnham claimed that forcing the nation to pay for elderly care out
of general taxation is "not fair to the working age
population".
But critics have accused the government of penalising those that
have saved their entire life, who may not even need to enter social
care.
Mr Burnham is expected to set out solutions for elderly care in
early April.
Edward Rees, Partner and head of Lanyon Bowdler's private client
department, has this to say: "Nobody likes the state to get their
hands on more of their capital than absolutely necessary. I know
most of my clients find it particularly galling that they have been
told by successive governments to be good citizens and to save, but
then see nothing but assaults on (or potential threats to) their
capital base.
It's all so disjointed: On the one hand the government says it
wants us to "save" but we are given little real incentive to do
that. In fact, over the last 10 or so years the government has
smiled on an environment where we have all been encouraged to
spend, spend, spend - to the extent of treating our homes like ATM
machines. On the other hand, when we do build a base for our future
comfort (and make the mistake of not completely exhausting it
before we die), our estates face IHT at 40% on value over
£325,000 if we're single, and £650,000 if married or
registered civil partners. That all comes on top of the income tax,
capital gains tax, national insurance contributions and VAT that we
have paid throughout our lives!
Having said all that, we are an aging population and people
expect quality care provision. However, the unpalatable reality is
that care costs money. So, whichever way round you look at the
issue, it's either going to have be financed privately, by
increased taxation, by some sort of compulsory insurance scheme, or
by cutting services elsewhere. It's certain that whichever option
is adopted in the long term, it's not going to please everyone. But
that's politics!
Three other things are also certain: 1) No political party is
actually going to put things as starkly as that in their manifesto,
they'll either fudge the issue or dress it up; 2) If there is to be
increased taxation, we, as consumers, should have a right to demand
top quality service in return; and 3) We'll do all that we can to
help you forward plan for these sorts of contingencies - so, when
announcements are actually made and things are more certain, watch
this space."