The Conservative manifesto proposes to set a capital floor of £100,000 to pass on to the next generation, with any other assets used to pay for the accumulated care costs up to the date of the elderly person’s death (subject to an overall cap – as we now know). However, it seems that the proposal will need a serious amount of consideration to make it workable, to ensure that it is not easily avoidable and fits with matters of legal ownership of assets and the interaction with the complex rules for inheritance tax.
The key question will be at what point is the assessment made of what assets should be used to 'repay' the care costs? What if the elderly individual has already given away the assets – to the next generation or to trustees? Will there be a timeframe within which they still form part of the usable assets for the care costs? But what happens if the new owners don’t give access to the assets, have already disposed of the assets, have spent it or lost it on an investment?
In addition, what if the asset is legally given away but still used by the elderly owner – for example they give the main home away to children but still live there? There are inheritance tax rules which mean that the gift is ineffective for tax purposes, but how will that work for the new rules on social care costs? What if, because of those IHT rules, the assets are not in the ownership of the estate but tax is to be paid on the value of the asset – will that come out of the £100,000 to be passed on or will the rules preserve the £100,000 for the next generation so that there are less funds available for the care costs?
What if there are claims on the estate for borrowing or if a family member claims a proprietary estoppel (a right to some value from the estate because they have given up their job to look after the ageing family member, for example)? Will the £100,000 floor be retained?
The principle of recovering care costs from an estate, while leaving a minimum £100,000 pot to pass on to the next generation, may be well intentioned. However, there will be much to consider within existing legal and tax rules to make this work. We might end up with very complex legislation around this, or the complexities may be seen as good reasons to quietly drop the proposal.
For more information please get in touch with Gary Heynes, or your usual RSM contact.