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Govt mulls IHT-exempt ‘Care Isa’

The government is considering bringing in a “Care Isa” that would be exempt from inheritance tax as a way to combat the UK’s social care crisis.

According to The Telegraph, the Treasury is considering proposals to include a new Care Isa in the social care green paper, which is expected to be published later this year.

The report says Care Isas would be capped to reflect the cost of care and any money leftover could be passed on to the Isa-holder’s family when they die.

Under current rules, Isas are taxed at death, which means savers have an incentive to spend the money rather than use it for end of life care.

Former pensions minister and Royal London policy director Steve Webb says it is difficult to see how a Care Isa would make a “meaningful contribution” to tacking the social care funding crisis.

Steve Webb: Time for action on care funding

Webb says: “Care costs can vary hugely between those who run up six-figure bills after extensive residential care and those who face negligible costs. It would be impossible to know in advance how much to save into a Care Isa, with most people saving too much, and some people saving far too little.”

Webb adds: “There would also be issues about whether people whose needs changed could get money out of a Care Isa without penalty, and rules would be needed to stop people shovelling money into a Care Isa very late in life purely as a form of inheritance tax planning.”

Former pensions minister Ros Altmann is supportive of the idea saying Care Isas could be one of several measures to solve the care crisis.

Altmann says: “At last, people may set money aside, in advance, to cover future care costs, currently they do not think about it, rather than suddenly having to find money at the very time they are most vulnerable. Older people’s Isas may otherwise be spent well before they need care, and they may regret this later but it would be too late.”



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Encouraging families to take out LTC insurance plans by allowing tax relief on the premiums would be far better.

  2. The success of ISA’s generally has been their simplicity

    Now there seems to be an ISA for every day of the week

  3. Jonathan Willis 14th March 2019 at 6:08 am

    In my opinion I can’t see this working. People who save/invest/use an IFA so build up their wealth. I can’t think of many that get to later life and think “just spend it” because of IHT. Many want to pass it down to their children or many do actually consider care and want to ensure they have means to pay for it. It’s those who don’t save and never will save that are not prepared to be honest I can’t see a care isa ever changing their mindset or encouraging them to!

    Don’t get me wrong, the care ISA would be advantageous to those who are in the saving and investing mindset but I think it would be used for an iht planning tool moreso than anything else.

    What the government should think about is getting the people who don’t save/invest from a very young age to save and invest! It should be mandatory! The government could perhaps offer free financial advice to people by way of a voucher. Then make it mandatory to save a certain level of their income for future care provision/retirement. Trouble is how do you know what people will need in advance. Will they end up paying in too much and getting no benefit, what if they don’t have children??

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