UK MPs have proposed new taxes to pay for social care, which include a tax for over 40s, called the social care premium, which would also be paid on income from pensions and investments and additional inheritance tax on estates over a certain size.
A report from the Housing, Communities and Local Government and health and social Care Committees found that anyone with assets of more than £14,250 must pay for some of their care, and anyone with assets over £23,250 must pay for all of it.
This figure has not been raised since 2010, which makes it now 12 percent lower in real terms due to inflation and local governments are spending 5.8 percent less on care than in 2010.
Currently, one in ten people face ‘catastrophic’ care costs of more than £100,000 and more than half of people either go without the care they need, or rely on family and friends. The care gap is expected to be up to £2.5 billion by 2020 and the report concluded that: “in its present state the system is not fit to respond to the demographic trends of the future.”
A personal finance analyst at Hargreaves Lansdown, Sarah Coles, commented on the proposed taxes: “Anyone who has faced the horrendous cost of care, and the lottery of local support, will appreciate that doing nothing about the crisis in social care is not an option. It’s why MPs have opted for such radical solutions.
“But for those squeezed by higher taxes to help pay for this care, it’s going to be yet another burden to bear – one that arbitrarily kicks in at the age of 40 – when many people are already squeezed by the cost of raising a family and caring for their own ageing parents.
“It will also hit those who have done the right thing in investing for their future, because MPs suggested including income from investments and pensions when calculating the additional tax due, and charging additional inheritance tax on larger estates.
“It underlines how important it is to make sure that any money you are putting away for the future is done as tax efficiently as possible. Taking full advantage of your stocks and shares ISA, and pension allowances, doesn’t necessarily mean you will be exempted from paying a care levy. However, it will stop you needlessly paying additional tax on top, so your money will naturally work harder. For those with larger estates, an additional inheritance tax levy would make inheritance planning and gifting even more vital - while you are still young enough to do something about it."
Kelly Greig, a tax partner and planning for later life specialist at Irwin Mitchell Private Wealth, also commented: “The latest announcement from MPs stating there should be a new tax on the over-40s in England introduced to help pay for elderly care for all raises more questions that it provides answers.
“The major concern is that this proposed tax levy will be used to fund the deficit rather than to improve services for the desperately overstretched care system in the UK and provide help to those who need it. Currently the system is means tested; even if the money raised from a tax levy was put into a universal pot for all, there’s still the chance the care system would need to revert to a means-based assessment because of rising living costs and life expectancy rates.
“Recent history on changes to the care system have been patchy. The 2014 Care Act was introduced without the proposed costs cap, which was intended to bring down the cost of care homes. The cap was proposed to be listed at £72,000 before a person would be fully funded, but the details were not as generous in the fine print: the cap would only cover care costs and not the ‘hotel’ costs associated with care such as for bed and food.”
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