Savings plan for elderly
Care ISA ‘would only benefit wealthy’, say critics
The Treasury has been reviewing plans to include a new Care Isa in the social care Green Paper due to be announced by the Government.
Isas are ordinarily taxed when the holder dies, but under the plans any money left over in new savings plans to help meet care costs in later life would be passed to heirs free of ‘death tax’.
However, only an estimated 4% of people leave estates big enough to force their beneficiaries to pay inheritance tax. This has prompted criticism that a Care Isa would only help the wealthy.
Ed Monk, associate director for Personal Investing at Fidelity International, said: “We now have a plethora of different ISAs for different purposes and this is already confusing for customers, as shown by the fact that ISAs still only attract the minority to non-cash long term saving.
“This seems to be a case of tinkering with the savings system for political purposes rather than addressing the needs of the majority.
“The costs of social care are high and too much for all but the wealthiest families to bear without help. But these costs don’t fall on everyone, which is why a pooled-risk approach still seems most likely to solve the challenge of mounting social care bills.
“It’s not clear how a Care ISA that alleviates Inheritance Tax will help the majority when, at the last count, IHT falls on just 4.2% of estates.
“Wealthy families who would stand to benefit from a Care ISA already have many advantages in the tax system if very costly care bills land.
“Under the current rules, family homes enjoy substantial relief from IHT in a way similar to what is now being proposed for ISA savings earmarked for care.
“In this sense, wealthy families are likely to already have a store of wealth in their home to pay for care which they can pass on without tax if it’s not needed.”
The Conservative head of the Commons Health and Social Care Committee, Sarah Wollaston, dismissed the proposals.
“This won’t solve the care crisis at all. There is no pooling of risk. It only “solves” it for a small minority of wealthy people who can afford to invest and whose families benefit from paying lower tax on their inheritance if not used for care,” she said on Twitter.
However, Baroness Altmann, the Conservative peer and former pensions minister, backed the idea of introducing a special ‘Care Isa’ allowance, which could pass on free of inheritance tax if unused.
“Each person could be allowed a Care Isa fund up to a maximum sum, to be spent on care. They could transfer existing Isa balances into this Care Isa, or fund it from new savings,” she said.
“Encouraging the current cohorts of older people to keep some Isa savings for later life, in case they need care, can contribute to solving the care funding crisis.”
You need to be worth £325,000 if you are single, or £650,000 jointly if you are married or in a civil partnership, for your beneficiaries to be liable for up 40% death duties.