Written By Douglas Sims
On the 7th September 2021, we finally saw a controlling Government attempt to address a problem plaguing many western economies with ageing populations.
Whilst we can argue that the need for these tax rises has been intensified by the recent pressures put on the NHS, the current long term care system has long been overdue a major shakeup. The central government identified this as an area of concern over 10 years ago when commissioning the Dilnot inquiry. The Dilnot Report simply concluded that the current adult social care system was not fit for purpose and required more funding.
As financial planners, we are always aware of the elephant in the room of long-term care fees, which can decimate the legacy individuals want to leave.
What changes have been announced?
The takeaway headline is that, from October 2023, no one in England will pay more than £86,000, during their lifetime, towards long term care. This does not apply to Wales,
Scotland and Northern Ireland who have devolved powers.
The is an enormous step in the right direction, but of course, the devil is always in the detail. We anxiously await the release of a white paper due later this year to understand the finer points. We know already these changes will not benefit anyone already receiving care. The £86,000 cap will come into force in October 2023 and care costs incurred prior to this date will not count towards the cap.
Likewise, this cap will only apply to care costs. It will not apply to daily living costs such as food and accommodation which can easily count towards a third of total care costs. The level of care which an individual receives will continue to be assessed by the local authority and the associated cost is applied to the £86,000 cap.
Are the rules around self-funding changing?
Yes. Under current legislation, any individual with assets above £23,500 is required to pay their own long term care fees. Should they, their spouse, or a close relative over 60
reside in the property they own, this will be discounted. However, should the individual be required to move to a care or nursing home and the previously mentioned not apply, their home will count towards their total assets.
Under the new proposed rules, anyone with assets less than £20,000 will have 100% of their care fees paid for by the state. Assets between £20,000 and £100,000 will be means tested for financial support, and anyone who has assets above £100,000 will be required to self-fund up to the £86,000 cap.
Will this benefit everyone who requires long term care?
Sadly not. The government now estimates that only 1 in 7 of us will spend more than £100,000 in care fees over our lifetime. According to the Personal Social Services Research Unit, the average time an elderly person spends in long term care is around 30 months, and so very few will ever reach the cap, however, it will be extremely beneficial to the few that do require longer term, intensive care.
In 2019/20, the average cost of a residential care home in England was £35,412 and for a nursing home this increased to £50,908 (although this is subject to where you live in the country with fees in the south-east of England significantly greater). Please note however, that these are total costs including daily living costs.
How will this be funded?
From the tax year 2022/23 National Insurance Contributions will rise by 1.25% for both Employees and Employers. The government state that these changes will cost £255 a year for someone earning £30,000, £505 a year for someone on £50,000, and £1,130 a year for someone earning £100,000.
In addition, to ensure small business owners who are heavily remunerated through dividends rather than salary, the tax rates applied to dividends will increase by the equivalent amount.
From 2023/24 this will be replaced by a new Health and Social Care Levy of 1.25% which will appear separately on your monthly payslip. It will also apply to those in employment above State Pension Age who are currently exempt from paying National Insurance Contributions. This is forecasted to provide the NHS with an additional £12 billion over each of the next three years.
What does this mean from a Financial Planning perspective?
For workers, pension contributions via Salary Sacrifice will become even more appealing for the tax year 2022/23, but is unlikely to have any greater benefit from then on when the Health and Social Care Levy comes into effect. Small business owners may also wish to draw a greater level of dividends this tax year rather than next, providing it does not push them into a higher tax bracket.
Those in retirement not yet receiving long term care will benefit most. We will be able to budget adequate finances to meet the £86,000 lifetime care cap knowing that long term care fees are not a bottomless pit. I suspect we will see innovation from the insurance industry and a rise in more reasonably priced insurance policies to cover off this potential expense.
It is too early to make concrete plans until we see how the new legislation plays out, and how the finance and care home industries react to these announcements. However, we will be keeping an eager eye on this.
Should you wish to discuss these changes and how they may impact your long term financial planning, please do not hesitate to get in touch with an Integrity365 adviser on 0117 450 1300
Written By Douglas Sims
