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The UK Government’s “Build Back Better” plan has specified that a £86,000 cap on personal care costs will be introduced in England from October 2023. These plans have divided both the media and politicians, as the Government states its goal to eradicate unlimited, unpredictable care costs – and the possibility of needing to sell your home to pay for it. As financial planners, our team at Elmfield Financial Planning is keen to explain how these plans might affect your wealth and finances in the short and long term. Find our thoughts below, which we hope you find useful. If you’d like to speak to an independent financial adviser then you can reach us via:
T: 01282 772938
A summary of the plans
How to fund social care is an issue that has long plagued successive UK governments. Social care refers to state-provided financial support, protection and personal care for those who are ill, disabled, elderly or impoverished. As such, a recipient of social care could be a young adult who needs 24/7 care due to mental health problems, or it could be a 90-year-old who can no longer live independently due to frailty. The difficulty, of course, is that this care provision costs money (e.g. to cover caregivers’ salaries and residential home facilities). To provide a care system that is “free at the point of use” – like the NHS – has been deemed too costly by the Government. Yet the present system has also been deemed unsustainable.
The Government’s new plan, it seems, is to try to strike a balance between individual and state responsibility for your social care. Their idea appears to be that you should have £86,000 ready to spend on your care, should you ever need it after October 2023. After that, the government will cover your costs. If you own less than £20,000 in assets then the local authority will pay for everything. If your assets are under £100,000 then you could receive some funding support via a means test – up from the old cap of £23,250.
How this affects you
Let’s start with the good news. First of all, more people are likely to receive at least some level of state support for social care, since the old threshold of £23,250 has risen more than fourfold. Secondly, those with over £86,000 in assets can expect to leave a more meaningful inheritance to their loved ones when they die. This is because, in theory, less of the estate will need to go towards paying for social care, and so can be passed down instead. However, any savings from social care will still be subject to inheritance tax (IHT), which is typically set at 40% on the value of an estate valued over £325,000. To mitigate this, we suggest speaking with an independent financial adviser to explore some possible options – such as making gifts or using trusts.
Yet criticisms have been levelled against the new social care cap plans. In particular, it is still not clear whether “non-care costs” will be included under the cap – such as paying for food, energy bills, cleaning and accommodation. These costs can run up to £10,000-12,000 per year. So, it is possible that an individual will still need to pay significant care-related costs after hitting the cap. Moreover, many studies suggest that most people will not, in fact, benefit from the new cap. In 2021, the median length of a stay in a care home is 19 months – which is not long enough to cost more than £86,000 in care fees.
Half of people die within half a year of moving into a home, and 75% do not make it past three years. It is also worth noting that spending on care will only count towards the cap for people who the local council decides are eligible. Over 50% of care funding requests are turned down, and the new cap system is unlikely to change this. Indeed, one study by the IFS suggests that the extra tax raised by the hike in National Insurance (to pay for the care cap) is likely to be swallowed up by the ever-growing NHS budget – leading to the social care sector continuing to struggle with lack of staff and funding.
In short, the new cap does not remove the need for individuals to factor their possible future care costs into their financial plan. Anyone with over £23,250 in assets will likely need to make significant contributions to their own care costs, and may require selling your home to cover the costs (if you do not hold sufficient funds outside of the equity in your property). Hopefully, you will never need to enter long term care – eventually passing down your assets to your loved ones without care costs eroding their value. However, this scenario is not certain and so it pays to have a contingency plan in place, to help protect your financial goals even if you need to enter care. Over 10% of people aged 65 will face lifetime costs well in excess of £100,000, so make sure your estate is not disproportionately affected in such a situation.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
