Over 40s may soon have to pay £700 in tax to cover cost of care
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According to radical proposals currently being considered by the Government, the over-40s may soon have to pay £700 extra in tax each year to cover the costs of looking after the elderly.
Granted, we have our hands full with a spiteful pandemic right now, but the cost of later-life care is a longer-term problem that will not simply go away. Indeed, as data shows that the UK’s over-55 population has grown by nearly 1.4 million since 2016 and is expected to rise by a further 3.7 million by 2030, the problem could worsen.
At present, annual later-life care costs taxpayers £7.8 billion, a figure that will double over the next forty years as the population ages. Raising the necessary funds, either by increasing tax or making the purchase of ‘social care’ insurance compulsory (the insurance would pay out in the event that policy holders needed care) is essential.
Successive governments have failed to address the burgeoning cost of later-life adult care, leaving us in a ridiculous situation where anyone with assets worth more than £23,250, an arbitrary figure which usually includes the value of the family home, pays for their own care. Only after people have spent their savings and have less than £23,250 remaining will the state start contributing to care costs.
Noting this harrowing policy consequence, Baroness Altmann, a former pensions minister, said: “This means those who have prudently saved can lose everything.”
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Yet there are anomalies: people who suffer from cancer or other physical illness rightly receive NHS care free of charge; those suffering from dementia or physical deterioration brought about by old age must start digging into their savings.
The over-40s tax proposals under consideration are not particularly ‘radical’; two decades ago, Japan introduced a similar tax, although rising demand for elderly care has meant that tax bills for average Japanese citizens aged forty-plus have doubled since 2000.
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Nevertheless, since a third of the Japanese population will be aged 65 and above by 2040, it could be argued that the additional tax has been essential. Closer to home, one in four people here will be over 65 by 2050, a startling fact which suggests that the matter can no longer be ignored.
It is estimated that around a quarter of UK citizens who require adult social care (the figure runs into the millions) qualify for state help in meeting the costs, the scale of which, particularly care home fees, can come as quite a shock.
As we have noted, if you live in England and your savings exceed £23,250, you’re liable for the total costs, whether that be to cover home care or residential care home fees. However, even people who are self-funding may be entitled to some form of financial assistance, including Attendance Allowance¸ Personal Independence Payment, or Carer’s Allowance, if appropriate.
For an increasing number of homeowners, however, releasing equity from their property offers an alternative, almost guaranteed source of funding, although using this money to pay for long term adult care is only one option. Equity release is increasingly used to help people fund a better or more conveniently located care home, or to buy a higher standard of home care provision.
Not surprisingly a large proportion of homeowners would prefer to receive care in their own home, an understandable preference which has resulted in many folks using their equity release funds to make modifications to their home, ensuring it becomes more comfortable and practical for later life.
Given what can be achieved with equity release, it will come as no surprise to discover that the most popular question posed by older homeowners who have built the wealth in their property over many years is: “How much can I release from my home?”
The answer will depend upon several factors, including the homeowners’ age(s), their health and the property’s value. To obtain an idea of how much you can release as a tax-free lump sum from your home, use the following online calculator: https://www.moneymapp.com/the-equity-release-calculator
Most people realise that with the economy on its knees, the most urgent, post-pandemic matter to address is rebuilding it as rapidly as possible. The likely consequence is funds for later-life adult care will remain in very short supply.
It follows, therefore, that we probably will see the introduction of a unilateral tax on the over-40s or some form of social care insurance, possibly both. Fortunately, equity release can offer homeowners aged 55 and over several choices not available to others: the option to future-proof their home; select a care home of their choice, or pay for home care.
While equity release isn’t for everyone, the benefits it can confer could offer older homeowners some rare luxury during troubled economic times.
Readers considering equity release as a means of funding later-life care should get in touch. My email address is email@example.com
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Please note that neither Moneymapp.com or Peter Sharkey can advise readers on whether equity release is suitable for them. However, both Moneymapp.com and Peter can introduce readers to professional advisers who will explain the process and its implications for your estate and entitlement to means-tested state benefits.
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