What you can do about the so-called ‘Dementia Tax’

Dementia tax

The Conservative’s pre-election manifesto contains a number of radical reforms to how care will be funded – which include getting rid of the promised £72,000 cap on care fees that was due to come into effect in 2020. We look at the policies that the Conservatives promised, shelved and then scrapped – together with the new manifesto policies (dubbed ‘the Dementia Tax‘) and what they will mean for you. We also look at what you can do to protect your assets.

What existing pledges have been completely scrapped?

£72k care cap:

In their May 2015 election manifesto, the Conservatives promised a lifetime cap on care costs of £72,000 from April 2016. Had it been introduced, the policy would have meant that no one would have had to pay any more for their eligible care needs to be met once they have spent a total of £72,000. The cap was to apply to the cost of care that people receive either in their own home or living in a care home. It was not however going to include someone’s ‘hotel costs’ (i.e. bed and board) if they were living in a care home. These would still be charged separately even after reaching the cap although so-called hotel costs would have been capped at £12,000 per year.

Just two months later in July 2015, the Government announced that they were breaking their 2015 manifesto commitment to introduce the rules in 2016 – and the introduction of these would be delayed until April 2020.

In the 2017 Conservative manifesto it appeared that the pledge had been scrapped altogether. However, the Prime Minister has today promised a consultation on the matter, stating: “We will make sure there’s an absolute limit on what people need to pay.” This was not included in the 2017 manifesto. The Prime Minister insisted nothing had changed, but political commentators noted otherwise:

The £72k care cap was rejected in the Tory briefing as too expensive because of the ageing population. So we can expect any ‘absolute limit’ on the amount an individual pays towards their care that results from a new consultation to be far in excess of the £72k proposal.

Means threshold:

In addition to the £72k cap, the Conservative’s 2015 campaign included a further pledge to change the level of personal assets at which people would be eligible for state help with residential care costs, irrespective of the cap, from the current £23,250 to £118,000. If this policy had been brought in, anyone with assets of between £17,000 and £118,500 who met the eligibility criteria for care would have been entitled to at least some financial support, determined by a sliding scale.

In July 2015 this pledge was also shelved until 2020.

This policy has also been scrapped in the 2017 manifesto and replaced with a new policy (see below).

What are the new pledges?

The Conservative manifesto makes a number of new proposals for funding care, as follows:

Value of property considered even for home-based care

The Government have pledged to “align the future basis for means-testing for domiciliary care with that for residential care”. This means when performing a means test, the value of the family home will be taken into account (along with the person’s other income and assets), regardless of whether they are to receive care in their own home (domiciliary care) or in a residential home. Currently, the value of the family home would not be taken into account when considering funding for domiciliary care.

What if I need care and my partner still lives in our home?

Current rules do not take the family home into account when performing a means test, in certain circumstances. These include, for example, if your home is occupied by your partner or former partner, unless they are estranged from you. It is not entirely clear whether this will still apply if the 2017 proposals are brought into effect. We know that under the 2017 proposals the value of your home will be taken into account even if you are living in it (i.e. if you need domiciliary care) and it seems unlikely that the fact your partner or some other dependent also lives in the home will shelter the property from the means test.

‘Capital floor’ of £100,000

A means test will be performed if the person’s assets (including the family home) total more than £100,000. Although the Government have said that this is ‘more than four times the current means test threshold’, it is important to appreciate that this will apply to both domiciliary care and residential care (as noted, currently the means test would only be performed in relation to residential care). With nine out of ten homes worth more than £100,000, the reality is that more people will have to foot care bills under the new proposals.

Deferred payments

Under the current care funding scheme, those who need residential care who have to pay for the cost themselves may defer the payments. Effectively the Local Authority will have a charge over the property which is redeemable on death. The Conservative’s election manifesto proposes to allow those who will now have to pay for domiciliary care to defer the payments in the same way. However, note our comments under ‘Care Lottery’ below.

Care cap

Although the £72,000 care fee cap appears to have been scrapped, the Prime Minister has today promised a consultation on the ‘absolute limit’ an individual will pay towards the cost of their care. The consultation paper is expected in October.

Care fees lottery

Care fees are more expensive in some parts of the country than others:

 Region/Cost per weekCare homeCare home with nursing
East Midlands
East of England
North East£522£631
North West£471£678
Northern Ireland
South East
South West
West Midlands
Yorkshire and the Humber

Source: Laing & Buisson Care of Older People, UK Market Report 2014/15

House prices also vary throughout the country:

  • North East £122,000
  • North West £150,000
  • West Yorkshire and the Humber £150,000
  • East Midlands  £176,000
  • West Midlands £180,000
  • East of England £277,000
  • London £472,000
  • South East £312,000
  • South West £240,000

Source: House Price Index, UK: Mar 2017

This means that the effect of care fees on the  total value of your assets will depend on where you live. In the East Midlands, a two year stay in residential care could cost £70,824 – just over 40% of the value of your home. By contrast, a two year stay in residential care in London could cost £92,456 – a higher figure but just under 20% of the value of your home.

The ability to defer the payment of care fees until after death, as proposed under the 2017 Manifesto, would also appear to depend on whether you live. According to the Times people in some parts of the country are already struggling to exercise their legal right to defer residential care payments until after their death, with some authorities making it difficult or impossible to strike a deal. Freedom of information requests sent to 140 councils by Royal London revealed a disparity in how they offered residents going into care homes the legal right to delay payments. Councils such as Essex and Southampton are entering agreements with hundreds of residents, but ten authorities, including Lambeth, Blackburn and Luton, said that they had failed to strike a single one. Forty-seven councils told Royal London, the investment company that sent out the requests, that they had signed fewer than ten agreements with residents.

How you can protect your assets

The proposals are at present part of the Conservative manifesto so whether they come into effect will depend on whether the Conservatives are voted in on June 8th.  However, despite Labour closing the gap, most people expect that the Tories will be successful and the care proposals are therefore likely to become a reality.

It has never been more important than now to consider now how you can best protect your share of the family wealth from future care fees.

Whilst some have been tempted to gift their home to their children, this can have drastic consequences – see our article ‘Should I give away my home to my child?‘ and our guide to ‘Deprivation of assets‘.

We recommend that our clients consider making what we call a ‘Care Fee Trust Will‘. This requires that you hold your home as Tenants in Common rather than Joint Tenants (we can assist with severing the tenancy if necessary). As Tenants in Common, you can leave your share of the home to anyone you choose – contrast this with Joint Tenants, where you both own 100% of the home and when one dies, the other inherits.

With these type of Wills, your share of the home and assets can be left to your spouse or civil partner for life, then to your children or grandchildren as you choose. You can even arrange for a special type of Will to be set up after your partner’s death which keeps your assets in the family and protects them from predatory third parties (your children’s/grandchildren’s creditors, ex partners etc). If your partner needs care after your death, their own share of the home and assets will be assessed for care fees – but your share will be safe as your partner does not own this outright. Your partner can make a Will in similar terms, leaving the home and assets to you for life and then to their choice of beneficiary on your death.

April King Legal are experts in this type of planning. We offer a free information pack explaining how these Wills work. We also offer a free consultation with one of our experienced lawyers who will go through your own family situation with you and explain how the Will would work for you. You can click here to order your free information pack or alternatively call 0800 788 0500 or email support@aprilking.co.uk.

April King Legal can show you the correct approach to take ensuring that you remain in control at all times. Talk to April King Legal today about Care Fee Trust Wills.

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