Will the new social care reforms help you?
For far too long, the elderly have been forced to sell their homes to pay for the ever-increasing cost of long-term care. However, the government has now said it will cap the cost of social care at £75,000 from 2017.
The cap only applies to the cost of care people receive in their own home or living in a care home, such as help getting out of bed, washing and preparing meals. It does not apply to the bed-and-board costs of care in a residential home.
Here, we run through how it will work.
SO WILL I BE ANY BETTER OFF?
Jeremy Hunt, the health secretary, insists we will all benefit. He says the £75,000 cap will help thousands of people who spend more than £100,000 on care - but only 10% of people pay this amount.
The cap is also nearly twice the £25,000 to £50,000 limit recommended in 2011 by the independent Dilnot Commission on Funding of Care and Support.
However, the government argues that regardless how much your care ends up costing, it will help people plan how much money they will have to put aside.
Michelle Mitchell, charity director-general at Age UK, says: "Age UK has always supported the principle of a cap because this protects against limitless care costs and is fairer for those who have saved, but we are disappointed that the cap looks likely to be much higher than the amount recommended by Andrew Dilnot: a lower cap would benefit more people and make it easier to plan ahead."
The means-tested support threshold will also rise from £23,250 to £123,000. But critics say this is not good enough.
Simon Smallcombe, head of guaranteed distribution for AXA in the UK, says: "With average house prices at £162,000, even before other assets are taken into account, the majority of people can still expect to pay towards care should they need it. Looking at data on property sales in December 2012, less than a quarter of properties sold for £123,000 or less."
HOW WILL THE CAP BE FUNDED?
The proposals will be funded by freezing the point at which inheritance tax (IHT) becomes payable. This will now stay at £325,000 until 2019, rather than rise 1% to £329,000 in 2015, as announced by the Chancellor in last year's Autumn Statement.
Brett Williams, managing partner at Old Burlington Investments, believes most homeowners will get a raw deal: "The Chancellor's decision to freeze the IHT threshold will affect the owners of millions of average-sized homes in the UK."
When the threshold was set at £325,000, an extra 3,000 estates had to pay IHT - taking the total to 20,000 in 2011/12. With the threshold now frozen, a government source suggests more than 5,000 households will be added to that figure each year.
WHAT HAPPENS IF I NEED LONG-TERM CARE NOW?
If you need long-term care now, you won't be able to take advantage of the cap. If you haven't got the savings set aside, if you own your own property, you could consider releasing some equity from your home.
Alternatively, if you know you will be moving into residential care, you could either rent out your property or sell up and then invest the money from the sale in relatively low-risk investments such as bonds, which pay regular returns.
State support for long-term care is available for those whose combined assets and income does not exceed £23,250 in England and Wales, or £24,750 in Scotland.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.