The UK government has announced how it will deal with the problem of elderly care costs. The problem, as it sees it, is that in order to meet the costs of care, too many people are having to sell the home they wanted to bequeath to their children. The government’s ‘solution’ is to cap the costs people might have to pay for care at £75,000, and have the excess financed by a stealth inheritance tax increase. Retreating from his promise to raise the threshold on IHT, Chancellor George Osborne now proposes to freeze it at £335,000 for 4 years.
This is, of course, the wrong solution. The right solution is insurance, with incentives and encouragement given to ensure that as many people as possible take it out to cover their future needs. The government’s ‘solution’ gives perverse incentives. The family that looks after its elderly is punished with a tax increase. While some will be spared from selling their homes, others will have to sell their family home to pay the inheritance tax on it. The death tax should be abolished, not increased, in order to encourage people to build up capital pools and pass them on to their children. Once again the government has got it wrong, and it will soon be running out of time to get it right.
Filed under: Updates