Social care: Inheritance tax freeze expected

Thousands more people will have to pay inheritance tax to help fund long-awaited social care reforms in England, ministers will announce on Monday.

The inheritance tax threshold is to be frozen at £325,000 for individuals and £650,000 for couples for three years from 2015.

That will help to fund plans including an expected cap of £75,000 on the costs people in England have to pay for care.

Labour said that would be "a small step forward for some people".

The move on inheritance tax comes despite Chancellor George Osborne's Autumn Statement pledge, in December, to raise the threshold by 1% - to £329,000 for individuals and £658,000 for couples - in 2015/2016.

The government is expected to announce on Monday that, from 2017, the costs of personal care for the elderly in England will be limited to £75,000.

That cap would not apply to the cost of accommodation in residential care homes which averages at about £7,000-£10,000 a year.

The plan would also let people in England with assets of up to £123,000 qualify for some state help - the current limit is £23,250.

It says its proposals could help up to 100,000 people who struggle to meet the costs of social care.

'Scandal' of care costs

Health Minister Jeremy Hunt told the BBC's Andrew Marr Show he would set out the details of the "fully-funded solution" in the Commons on Monday.

"The real point here is that we have a scandal at the moment where, every year, 30 to 40,000 people are having to sell their houses to pay for care costs," he said.

"Around 10% of us end up paying more than £100,000 in care costs."

He added: "By setting an upper limit to how much people have to pay, then it makes it possible for insurance companies to offer policies, for people to have options on their pensions, so that anything you have to pay under the cap is covered."

He said that, "just as people make provisions for their pensions in their 20s and 30s, so we also need to be a country that prepares for it social care as well".

Mr Hunt said he would not comment on an inheritance tax freeze ahead of his Commons statement, but said: "The point of what we're doing is to protect people's inheritance - the worst thing that can happen is, at the most vulnerable point in your life, you lose the thing that you've worked hard for, that you've saved for - your own house."

Writing in the Sunday Telegraph, Deputy Prime Minister Nick Clegg said: "We will make sure no-one is forced to sell their home to pay for care in their lifetime, and no-one sees their life savings disappear just because they developed the wrong kind of illness."

Asked if it was "a firm absolute" that no-one would have to sell their house to fund their care, Mr Hunt said that was "the objective".

On Monday, Mr Hunt - who estimated the policy could cost an extra £1bn a year by the end of the decade - is expected to say it will be part-funded by previously-announced changes to National Insurance and pensions.

'Not adequate'

Reform of social care has been the objective of successive governments and in 2010 economist Andrew Dilnot was commissioned by the coalition government to examine options for overhauling the system.

The Dilnot Commission recommended setting a lifetime cap of £35,000 on the total people would have to pay towards care at local authority prices - excluding living costs - and raising the value of assets people could hold before having to pay the full cost of their care from £23,250 to £100,000.

Labour said that, while the government's plan would help "some people who need residential care in five or more years' time", it would not be fair "for people with modest homes".

"Andrew Dilnot recommended a cap on care costs of £35,000 and warned that anything above £50,000 won't provide adequate protection for people with low incomes and low wealth," shadow minister for care and older people Liz Kendall said.

"We need a far bigger and bolder response to meet the needs of our ageing population: a genuinely integrated NHS and social care system which helps older people stay healthy and living independently in their own homes for as long as possible."

Older people's charity Age UK said it was disappointed at the "high cap" of £75,000 but added "a high cap is better than no cap at all".

Caroline Abrahams, a director at the charity, told BBC News: "Very many older people are absolutely terrified about... the catastrophic cost that care can sometimes do to you.

"The reality is people are still going to be paying quite a lot towards the cost of their care," she added.

Economist Ros Altmann said the proposals would create a fairer system that would allow people to "plan and prepare for care".

'Insurance solution'

But she added: "Even with the new system, you will have to save some money for care... at the moment there aren't any savings plans that will help you.

"[The reforms] will start to open up the possibility of the financial services sector being able to help people prepare for care.

"I don't think an insurance solution will happen very easily with this high level of cap... but I would hope that we would start to see savings products - and perhaps group insurance products, where people join together to save or insure against one or two of them needing care."

The reforms have been welcomed by the Association of British Insurers (ABI) as "another positive step forward in tackling the challenges of an ageing society".

The ABI's Stephen Gay said it was "vital that people clearly understand the cap and what costs are covered, and a national awareness campaign will be needed to make this happen".

In Scotland, personal care is free for those over the age of 65 who have been assessed by the local authority as needing it. In Wales, a weekly maximum of £50 is charged to all those using non-residential social services. Northern Ireland has a means-testing system similar to that in England.