It has been reported that the Government is considering proposals to introduce a new ‘Care ISA’ that will give savers the ability to ring fence some of their savings from inheritance tax.
It has been suggested that the proposed ISA would be capped at an amount which is reflective of care costs and that any amount of money remaining in the ISA upon the person’s death can be passed on tax-free to the holder’s family.
The objective for such an ISA is to encourage pensioners to hold on to their savings to meet the rising costs of their care requirements in later life due to the increasing ageing population.
Currently, when a person dies, any money left in an ISA is automatically brought into their remaining estate, which could potentially be subject to inheritance tax at a rate of 40%. This gives pensioners the idea that it is better for them to spend their savings before they fall into ill-health in order to avoid paying for care fees and any potential inheritance tax liability upon their death. It is claimed that the majority of people do not realise that the NHS will not be able to pay for their care.
According to the Telegraph, more than 4.3million people over 70 have an average of £40,000 in ISA wealth. Meanwhile, more than 12 million over 50s have saved tens of thousands of pounds into ISAs.
However, the proposed Care ISA has sparked criticism that it would only be beneficial for the wealthy as it is estimated that currently, only 5-10% of people leave estates sufficiently large to make their beneficiaries liable for inheritance tax.
An alternative proposal which has also been put forward is the “Social Care Premium”. This has been described as being an earmarked contribution to which individuals and employers should contribute in order to save for the rising costs of care in later life. It has been suggested that this could either be as an addition to national insurance, or through a separate mechanism entirely.
The policy proposal for the new ISA, and any other plans to reform the social care system to ensure it is sustainable for the future, are to be outlined in the Government’s upcoming Social Care Green Paper which is due in the Autumn.
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