Paul Lewis: Use housing gold mine to pay for long-term care

Paul Lewis

Changes in the way long-term care is paid for was the dog that did not bark in Chancellor Philip Hammond’s first Autumn Statement. It failed to get even a mention, despite many telling us there is a crisis in long-term care for older people.

There have been calls for tax subsidies for those who save up for their own care or take out insurance to pay for it. In other words, those who could afford to pay for it would get a subsidy from other taxpayers to do so. There is a much better solution.

Let me tell you about my neighbour Marjorie. When I moved into my house in 2001, Marjorie was already well into her 80s. She had one hip operation, then another, but still could not get about and her condition deteriorated.

She had been living in the house since the 1940s, inheriting it when her father died. She had no children and when she could no longer live alone she used the money from the house to buy herself care in a home she wanted to go into in a part of the country near her friends.

It would have been completely wrong if the £485,000 value of that house had been protected and hard-working millennials, who spend half the week keeping their landlord and the other half keeping themselves, had their taxes used to pay for her care.

But if Marjorie had been married that is exactly what would have happened. While her husband lived in the house, its value would have been protected and the local council would have paid for almost all the cost of her care. If this imaginary husband had died a few months after she passed away the whole value of the home would have been intact, to be left to whatever heirs he had.

The care home fee rules ignore the value of the resident’s home as long as their spouse or partner – or any elderly relative aged 60 or more – lives in it. But why?

Society has more right than the heirs sitting thinking: ‘Other taxpayers should pay for mum to go into care for two or three years, otherwise I won’t get the house’

The Miras mirage

The losers are not the people who need the care; they will be dead when it is all sorted out. It is the middle-aged children who complain. They expect to inherit the whole value of the house. Of course, many parents want to leave that legacy to their children. “It’s my home,” they say. “I worked hard for it. Why shouldn’t I pass it on as I choose?”

They may have worked hard to pay the mortgage but they rarely pay anything like its full value.

I bought my first house in 1975 for £9,350 (that was more than 3.5 times my earnings). I did my job and worked some evenings to earn more. My wife worked too.

We paid the mortgage. We kept our three children. And eventually the mortgage was paid off. Today that house is worth £325,000. We paid perhaps £20,000 for it, including interest. Where did the rest of the value come from?

Some came from other taxpayers. Between 1969 and 2000 mortgage interest relief at source meant I did not pay tax on the interest I was paying on my mortgage. That saved me 35 per cent off the bill in the early days.

If I had paid higher rate tax (a dream of mine then) I would have got even more Miras: anything from 40 per cent to 83 per cent off the interest cost. So society – all those other taxpayers, many of whom could not afford to buy their own home – helped pay for mine. Thank you very much.

But that is just the start. Allowing for RPI inflation, the price of £9,350 in 1975 is equivalent to around £75,000 now. Where did the other £250,000 of its current value come from?

It was created by the way society works. By a shortage of housing. By that Miras subsidy. By a growing population. By those who buy more than one home. So there is an argument that society has a right to its share of that windfall gain.

They have more right than the heirs sitting there thinking: “Other taxpayers should pay for mum to go into care for two or three years, otherwise I won’t get the house.”

That is why I say the value of a home should be taken into account when the local council considers the means test to pay for care. That happens now if there is no one left living there.

It should also happen even if there is a spouse or elderly relative in it. Of course, they could stay there for their lifetime, but when they died the cost of their spouse’s care would be taken from the estate and paid to the local council.

Putting the gold to work

The average cost of a nursing home is around £39,000 a year and the average life in care is two-and-a- half years. This means the total cost averages around £100,000. The average price of a home in the UK is £218,000.

So there is enough value in the average home to fund the care for two people at the end of their life. If it does run out, then the council would pay the cost, as now.

When the problem of paying for care was looked at under the coalition government, the Social Care Funding Commission chairman Lord Warner said, in the fashionable phrase of the time, that there was no silver bullet to solve it.

But there is a pile of gold – perhaps a trillion pounds’ worth – sitting in the unused assets of homes owned by the elderly. That is the same amount as the total gold reserves of the top 40 gold-owning countries in the world. It is serious wealth and it should be put to work.

Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programmeYou can follow him on Twitter @paullewismoney

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Comments

There are 40 comments at the moment, we would love to hear your opinion too.

  1. Inarguable logic – been saying this for ages.

    Sorry kids, but the jig’s up

    • Great if your home is worth over £200,000. Mums bungalow is £150,000. Still fat cats have to get their money from somewhere. My parents have made that mistake but they are not gonna catch me. Gonna blow the lot

  2. Meanwhile the people who can’t be bothered to work at all, live in rent free accommodation paid for by the tax payer, are moved into care, which is again paid for by the tax payer. As someone who is responsible for looking after a mum with Alzheimer’s and has been for a lot longer than 2.5 years, your comments are very one sided.

  3. Sounds great in principle, but what about those people who have never bought their home, and lived in a controlled rent place all their working/or not working! life? They have not had to worry about the cost of upkeep of a property as their landlord has covered all those additional bills throughout their life so they can spend their hard earned/claimed money on themselves. Who would pay for their care? Or is this just another social divide where those who have worked hard and built a legacy they would like to leave their children, lose out against someone who has lived for the moment and benefited from never having to worry about how they will pay for the boiler repair, or the cost of replacement windows?

    Perhaps a care home fee cap would be a suitable compromise. A balance between not being penalised because you have saved, but having to make some contribution towards the costs up to a limit?

  4. slightly one sided perhaps? presumably , completing, the picture, in buying their home and taking all of the risk in life in doing also removed them from the dependancy on social housing stock? Home buyers needed to have mortgages to benefit from miras so they must have been tax payers contributing to the social welfare budgets, during their working lives, that they perhaps fairly assumed would meet their needs when called upon? Many homeowners chose to “do the right thing” and made many life-sytle changes in order to make a better future rather than live for today. They are now being asked to pay again, because governments have not “budgeted or costed” for social care. The system does penalize those that fall in the middle ground of having done the right thing and not just lived for today all their lives. Those that have the same opportunity but lived for today now have nothing but STILL look to tax payers to pick up the Bill!

  5. Agree Paul, but unfortunately we live in a world where the media will also turn this against any MP or party who suggested such a solution.

  6. Alistair Cunningham 1st December 2016 at 1:29 pm

    Rarely do I say this: I agree with Paul.
    Though he did miss Principal Primary Residence relief – no Capital Gains Tax on an asset worth £100ks is a tax break.

    • Thanks Alistair, I didn’t mention that it you escape the LTC cost trap, they hit you with IHT! It’s an unjust system that favours the feckless. I won’t say stupid because they have the system all worked out and those bozo’s in government fall for it!

  7. Good luck with that!! I recently did a talk in a Care Home to a group of Solicitors and residents family members. After explaining the virtues and pitfalls of Immediate Care Plans one young lady solicitor piped up “I can’t understand why, if the resources are available, anyone wouldn’t opt for one of these, what is the main objection?”
    One of the residents Daughters immediately said “He’s spending my inheritance” to which my response was “Actually, no, that’s not true, I’m advocating that you spend some of your parents money securing your parents long term care”.
    Needless to say that got an extremely frosty reception!!

  8. Two issues here – the majority of people don’t want to pay for their care using their homes – which is why there is a cottage industry of businesses convincing people to put their homes into a lifetime trust as a significant cost (and whilst they’re at it, avoid the cost of probate which they over inflate the cost of but this is the reason it won’t fall foul of deliberate asset deprivation under CRAG).

    The second issue is that it assumes in time house prices will remain stable and future generations own property – both are under severe strain. Why own and pay for care when you can rent?

    Perhaps a much easier system to implement and palatable solution is to permit care fees, when paid out of pension assets, to be paid free from tax. This is already the case with Purchase Life Annuities and this approach gives fiscal support, at source, simply and easily without having to bring in another ‘insertprefix-ISA’.

    Maybe that’s too simple ….

  9. It is speculation by landlords and successive governments failure to deal with the housing shortage that has resulted in such spectacular returns on residential property in this country.

    It’s a bit harsh to penalise a family who may live on relatively modest means, but because their property is in a leafy part of London rather than a terrace in Rochdale they are expected to foot the bill. Don’t forget it’s hard enough to get onto the property ladder in the south east as it is, so stripping out property wealth from the economy to pare for long term care expenses isn’t the best way forward in my opinion.

  10. Interesting article, but as always the middle ground end up paying.

  11. Inheritance is not a right its a gift although this seems lost on most. Also there is the small issue of paying NI over 40 or 50 years not something the unemployed or those on credit need to worry about to receive EOL care.The more you work the harder you save the less you get the earlier you cease to exist QED. Work less, claim more, less stress and live longer.

    • It is when it helps another member of the family get on the property ladder. What are the government going to do when home ownership drops and these people then need care!

  12. Only in the UK? It wasn’t that many years ago that when Grandad or Granny became too feeble they moved in with the kids. Indeed there are even kids around who have moved back with Mum & dad. So you don’t have to lose the house if you are willing to indulge in a little self-sacrifice. In the Asian community extended families living together are often the case.

    Sur le continent it is not unusual. Indeed for the better off (I don’t think Paul thinks in those terms) it can even be very IHT efficient. The old folks sell their home and the kids sell theirs. They then buy a big posh pad with a granny annexe with the combined funds. Work it out. Oh, and finally most older people would rather be carried off in a coffin that to go into a home.
    Indeed in my own family I have had relatives and in-laws living well into their 90’s and two who lived past 100. They all lived in their own homes and live in carers were a darn site cheaper than a care home. I accept that if there is a serious disability or dementia then a home may well be the only option. But it is the general acceptance promulgated by the providers of these services, the press and those like Paul who automatically make a home the default option – it isn’t.

  13. Totally agree with Paul for a change.

  14. I can see how this is a ‘solution’ to the problem of providing care when it is needed but it is only targeted at those who, on the whole, have worked hard to buy their own property and been responsible enough to do so and not squandered their money on other things. Point in case, my father worked hard his whole life to buy his own property while my mum stayed at home to look after the family (it was of the time), never got into debt and went without so much for the sake of the family and was proud to think that he would be able to leave me and my siblings something, to give us a better chance than he had started out with. On the other hand, elsewhere in the family of the same generation, both parents worked, flash cars, foreign holidays, designer clothes, etc. etc. and never bought a property or saved and in the case of them having to go into care they get everything paid for. It’s not a case of penalising people who have worked hard all their lives, there is a need to address this for the whole population.
    & I’m happy to say that my father’s attitude has been ingrained in me – work hard to support you and yours.

  15. ‘buy herself care in a home she wanted to go into in a part of the country near her friends’: something we would all like to be able to do. Unfortunately, going into care is often not a matter of personal choice but the result of some kind of crisis leading to a move to the nearest home with available facilities (e.g. dementia care) that the council will agree to part-fund (‘social care’ being self-funding). As for providing this funding, surely only half the value of a jointly-owned home should be considered for one half of a couple?

  16. If you believe that people should work to earn money, as do I, then you presumably won’t mind not inheriting a bit of unearned money? I would be ashamed to scrounge an inheritance off my parents if I knew it could have been used to help care for them in the last years of their lives.

  17. Paul, there are good reasons why the system is the way that it is.

    We all know how sad it is for a person to have to sell his or her house to pay for care home bills.

    Imagine how much worse it would be, if that person’s spouse were still living there.

    An elderly person would thus have to find somewhere else to live from the proceeds of their property sale.

    Apart from the terrible strain this would impose, there might not be enough money available.

    Take a couple living in a £300k house, which they own jointly. The care home would get half of that, which leaves £150k to buy another property.

    That might be possible, but there may well be nothing available for that amount.

    For a lot of people, the situation, the would be a lot worse. They might not have enough money to buy anywhere at all.

    My example assumed that there was no mortgage or charge on the property and that it was owned equally.

    So, under your scheme, one half of a couple would be forced to leave the marital home and might not be able to afford anywhere to live for the rest of his or her life.

    That might well be another 35 years.

    So, your idea would inevitably impose terrible hardship on people.

    There are also practical problems, which would make it difficult to implement your scheme.

    Husbands and wives can transfer their assets between themselves to remove them from the clutches of the care home.

    It is also not hard to see other ways in which the resident of the care home can be made asset free.

    Finally, the assumption in your article is that it is somehow right to make people pay for their care home bills.

    I don’t see why.

    That person will have paid into the NHS and paid for other people’s medical care.

    How can it be right to deprive that person of care, when he or she needs it?

    • JC

      Paul did stress that the partner living n the house would stay put – the cost would be set against the estate.

      Ian Coley

    • You completely misunderstand what I am saying. Noone ever has to sell a home to pay for care. Under the deferred payment scheme it is paid for out of their estate when they die. The same would happen under my plan which merely extends the current rules to to a person in care where they have a home but their spouse (etc) lives there. Not sold in their lifetime but after second death.

  18. Mmm not sure I agree just had the new weekly monthly contribution for Care home arrive in the post this morning £796.61pw for mother in law my mum is in a now just gone into care home the council are currently working out how mach we need to contribute to mums costs. As a teenager felt a bit peeved seeing my school chum go to France on holiday each year only to be told by my parents that the mortgage was costing an arm and a leg and a holiday abroad was not possible. Now I will be expected to fund mums care cost home. While those that chose to spend surplus cash on short term self gratification rather build up assets expect care home cost to be paid. I know you can not get blood out of a stone but a better way must be found than the one you propose otherwise what is the point of saving. The signal your purporting is spend every last penny of your pay packet and dont save as the state will pay the care home costs.

    • Graham

      I’m afraid the myopic comparison with people who could never afford to buy a home is not going to cut it.

      Buying a home is not “saving” otherwise those who “save” in deposits or stocks and shares would have the same bellyachable comment to make as the home owner.

      The comparison is between, who should cover the cost and I’m afraid people should pay for their own care as far as possible – if that means there is less for the would be beneficiary so be it.

      Otherwise I am contributing towards all those who inherit the house.

      There is no rationale against this simplicity – just the delusional self justification put out by those who think they deserve the cake and the eating of it.

      Ian Coley

      • Great comment. Much like people who expect their BTL interest to be tax deductible but when I borrow 10k on my credit card to buy CFDs and binary options, HMRC were having none of it when I deducted the interest on my returns!

      • Special needs mum 4th May 2017 at 12:40 am

        My sons one to one 24/7 care costs work out 25 hours per day (1 hour for handovers) x 7 days a week x 52 weeks per year at approx £77,000 per year paying someone £8.50 per hour which for the skills needed is to low a rate that is without annual leave and sick cover, insurances, training and employment costs factored in. He actually needs 2 to 1 support as he has epilepsy, needs lifting and handling etc…He can live quite independently with an appropriate team supporting him indeed placing him in residential care would catagorically be to his detriment given the secondary factors of his brain injury and would only serve to exacerbate his medical condition, trigger challenging behaviours with the net outcome he would experience a pharmaceutical cosh and/or find himself sectioned……………..no one speaks to those who know from experience what is appropriate and no one without experience knows the true cost of care…………..

    • The worse thing is the self funders are propping up those who get their care paid for by paying a higher rate! Surely this is discrimination.

  19. Completely agree with Paul Lewis.

    For some bizarre reason this country continues to believe that somehow houses – especially those that are homes, are sacrosanct and untouchable by anyone.

    So I invest my money in companies rather than buy a house and it ends up being treated entirely different to a house. If I hang on to my house then the value is outside the scope of authorities when it comes to paying for care. This is a nonsense.

    Houses, be they homes or not should be assessed like anything else for CGT and IHT.

    Believe it or not people who choose to invest spare money work just as hard as people who choose to buy a bigger home with it.

    Pf curse some people never had enough to buy a home or invest in a portfolio of shares – that is why the welfare state exists – to protect them. The welfare state is not there to protect people who think the taxpayer should pay for the cost of care for their parents whilst they inherit to home.

    Ian Coley

  20. Reading through the comments section of this article only highlights the issues anyone trying to solve this problem would have. Half the commentators agree with Paul, thinking that inheritence is not a right, and the other half diagree, thinking that their parents have worked hard and should be able to leave their money to whom ever they like.

    Myself, I am torn. In the main, I agree with Paul. The baby boom generation have benefitted more from property growth than anyone before them and anyone after them ever will. Unfortunately the public purses are so empty that we can not ignore the wealth tied up in property, especially considering the ageing population we currently have. A cap seems to be the fairest system.

  21. Totally disagree. Someone has worked all their life for their house, they should be able to pass it on. They should have paid sufficient taxes to pay for their care. Care costs are astronomically high, bring them back into the public sector and remove profit and watch the cost collapse! Fair enough take the pension income, they don’t need that in a home, but leave the asset.
    The problem is twofold 1) care costs are too high 2) insufficient tax revenue is diverted, its siphoned off and wasted on other projects like expensive power plants or trains. I liked labours idea of a ring fenced care tax built up over a lifetime. But this should be kept within the scope of the public sector and not be used to pay for a care home owners 3rd Ferrari.

  22. What if you have a vulnerable child who grows into a vulnerable adult and the one thing you want to leave them to help secure their future is your house, knowing they may never be able to obtain that otherwise and fearing for their future, given that it would be almost impossible for them to afford any accommodation. I don’t see why parents who have worked hard and contributed and forfeited other things with that aim in mind shouldn’t be able to do it. Under your proposal the only way to ensure it so that their child does not end up on the streets as an adult would be for any parent facing a care home to commit suicide.

  23. I don’t agree – I will have paid tax and National Insurance my whole life so that I can be looked after in my old age by the state that I haven’t taken anything from because I HAVE to work to afford my mortgage so cant sit on benefits at any time. Why on earth would I want to own my home into retirement if all the state is going to do is take it away – I may as well sell the house, move into rented accommodation temporarily and put the money in a bond set up in a trust for the family on my death to pass on my hard earned savings.

    • That is what we have just done. A nice holiday now looms. Luckily my kids are doing and I refuse to give a penny back when I have paid my taxes. My dad was still paying tax on his death bed at 89. Too many people now in the country who will never contribute but get the lot!

  24. Special needs mum 4th May 2017 at 12:26 am

    Isn’t this why Maggie Thatcher encouraged everyone to buy their own homes in the first place when she was advised on the projected costs of social care going forward? However there are just too many anomlies in this school of thought and what fails to be taken into account of is that some loved ones doing 24/7 care have an arrangement with parents long before the care home stage and buy into the home to ensure their own security when they give up work, career and pensions to do 24/7 care for years prior to the care home scenario comes knocking. …………also those with kids with Learning difficulties want to ensure their safety and security and right to live independently something the state is now hell bent on ensuring does not take place pushing unilaterally for institualinsation and giving 40 million plus to charitable agencies to lock them all up once more no parent will let that happen especially those in the know of what really goes on in the care sector in this country………

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