The government is changing how the NHS and social care is funded. Gerry Brown outlines the proposals and sets out what they’ll mean for tax, trusts and retirement planning.
In September 2021 The Prime Minister announced plans to reform payment for adult social care in England. The bones of the proposals are:
- if an individual has assets worth less than £20,000 the local authority will meet all care costs
- if the individual has assets between £20,000 and £100,000 they will have to contribute to care costs, but will also be eligible for means-tested support covering some of those costs
- these limits will apply from October 2023, and
- there will be a cap on contributions .
At the moment, all care costs are met where assets are less than £14,250, but support is not provided where assets exceed £23,250. So the new proposals substantially increase the current limits.
The cap on contributions means an individual won’t have to pay more than £86,000 for care in their lifetime. This limit has been set as roughly equivalent to the cost of three years of care.
This ‘cap’ applies to personal care costs rather than accommodation costs. Spending on daily living costs – or what are often termed ‘hotel costs’ in a care home – do not count towards the cap.
How will the new social care costs be funded?
From April 2022, there will be a temporary 1.25 % increase to National Insurance contributions (NICs).
From April 2023 onwards, the NIC rates will fall back in line with those for 2021–22, when a new 1.25% ‘Health and Social Care Levy’ will be introduced.
Those over the state pension age will also have to pay the levy, which will apply to income that’s currently subject to NIC. That is, employment income and income from self-employment.
All rates of UK dividend tax will increase by 1.25 % from April 2022 and these tax changes will apply across the whole of the UK, not just England.
Although the proposed reforms will apply only in England it is expected that the devolved administrations will develop a similar approach to supporting care costs.
The Charging for Residential Accommodation Guide (CRAG) provides local authorities with guidance on means testing, but has not always been applied uniformly. This has caused confusion and distress.
The government proposals mention that insurance companies will be encouraged to implement new products to help finance future social care costs.
Can trusts be used to exclude assets from means testing?
No. The Society of Trust and Estate Practitioners (STEP) has warned:
“…if a local authority suspects that there has been a deliberate ‘deprivation of assets’ to avoid care fees then it may pursue penalties, insolvency proceedings, county court judgements and sometimes a criminal record”.
How will this impact paraplanners?
Many advisory firms will have an investable assets requirement well in excess of £100,000 so most, if not all, clients will not qualify for local authority support.
However clients might well need assistance in building up a ring-fenced fund of at least £86,000 to meet the contribution cap. This could involve some simple planning – perhaps developing a suitable ISA portfolio.
As a paraplanner, you need to bear in mind that your client will still need to meet ‘hotel costs’ from their own resources. Planning to fund these could involve pensions and ISAs as well as ‘collectives’ and life assurance bonds.
You’ll also need to take into account inheritance tax and general succession planning, when developing a client specific strategy.
Gerry Brown is a Consultant at QB Partners. He began his professional career as an inspector of taxes and later qualified as a chartered accountant. He’s worked at a number of financial services companies providing technical support and contributes to our Diploma in Paraplanning (DipPP).
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