Care reforms will drag thousands more into inheritance tax

INHERITANCE tax allowances will be held back from keeping pace with inflation for three more years to fund changes to elderly care, the government will announce today.

Thousands more people will be forced to pay the 40 per cent rate because the amount that can be bequeathed tax-free will be pegged at £325,000 for individuals and £650,000 for couples between 2015 and 2018. With the average London home now costing £365,000, many middle-class families will find themselves paying the tax on the death of their relatives.

The decision comes despite chancellor George Osborne’s commitment to raise the tax-free allowance by one per cent in 2015/16. Before the general election Osborne pledged to increase the allowance to £1m, saying he wanted to help “people whose only crime in the eyes of the taxman is that instead of spending their savings on themselves they want to pass something on to their families”.

The extra funds raised by the decision will be used to put a £75,000 cap on the amount the elderly pay for social care from 2017. Yesterday health secretary Jeremy Hunt told the BBC’s Andrew Marr Show that this would end “the scandal at the moment where, every year, 30 to 40,000 people are having to sell their houses to pay for care costs”.

However this is still more than the £35,000 cap suggested by the Dilnot review into long-term care costs. Both caps exclude the cost of food and accommodation. The government is also expected to guarantee no one will have to sell their home to fund care during their lifetime, with fees deferred until after death. There will also be an increase in the means testing threshold, so anyone with assets of less than £123,000 will get free care.