Social care reforms and planning options

Background

Reforming adult social care funding has been an issue for successive Governments. For a number of years, the Government has recognised that reform was needed quickly to support people using care services, as well as preparing better care for future users.

In July 2011, the Dilnot Commission was set up by David Cameron's coalition Government and was tasked with making recommendations for changes to the funding of care and support in England. It published proposals on 4 July 2011, and, amongst other things, recommended a lifetime cap on personal care costs of £35,000 for those aged over 65 and a more generous social care means test. The coalition Government accepted the proposals in principle, although it altered the parameters for the cap, setting it at £72,000.  

The measures for reform made by the Dilnot Commission are included in the Care Act 2014. The Government initially set an implementation date of April 2016 for the reforms, and, in April 2015, part 1 of the Act introduced the first of the reforms – a universal deferred payment arrangement and new national criteria to determine eligibility for care. The remaining changes however have been continually delayed – until now!

On 7 September 2021, the Government published ‘Build Back Better. Our plan for health and social care’ and will introduce a Health and Social Care Levy (HSC Levy).

HSC Levy and an increase to the dividend rates of tax

The HSC Levy is estimated to raise £12 billion per annum and will be ring-fenced to pay for the Build Back Better health and social care plan and will initially be funded through increases in National Insurance (NICs) rates.

It has been announced that from April 2022:

• there will be a new HSC Levy of 25% ‘levied as an increase on Class 1 (employer and employee) and Class 4 main and higher rates of NICs, so it will apply to employers, employees and the self-employed (including partners); together with
• a 1.25% increase to the dividend rates of tax.

Then from April 2023:

• the NIC rates will return to the 2021/22 rates; and
• the 1.25% HSC Levy will be formally separated from NIC, so it will become its own tax with a sperate line showing on payslips and self-assessment payments. It will also apply to those still working above state pension age even though they do not currently pay NICs.

Scotland, Wales and Northern Ireland have their own care funding systems, but as NICs are not a devolved tax, their residents will have to pay the HSC Levy. It will be returned to the devolved nations via the usual allocation formulae.

So how will health and social care funding change?

The new funding will mean that as of October 2023:

• Those with assets above £100,000 will have to pay full care costs however, there will be a new lifetime cap of £86,000 on the amount that anyone in England will need to spend on care costs.
• Those with assets below £20,000 will not be required to use their savings for care costs but may need to make a contribution from their income.
• Those with assets valued between £20,000-£100,000 range, will receive some means-tested support, but will be expected to make a contribution from their income. If their income is not sufficient, they will contribute no more than 20% of their chargeable assets per year. For single people, their main home will be included, but for those who are cared for at home, or have a partner, the property will be ignored.

Currently, if someone has assets worth over £23,250, they are required to pay their care costs in full, although that doesn’t include accommodation. And only those with assets less than £14,250 receive full financial support. Also, currently, if someone needs to go into a care home, the value of their home may be included in the means test.

Will the changes fix the problem?

It is arguable that the new cap on care costs will provide some certainty for those entering care in England from 2023. Further, the higher means test limit will, of course, mean more people will be eligible for some financial support. However, at present, the Government has said this only applies to ‘personal care’ costs, so those receiving care could still find themselves facing significant costs, for example, food and accommodation cost which won’t count towards to the lifetime cap of £86,000.

More details on this social care reform are expected later in the year, but in the meantime individuals ought to consider their own position, and, if possible, plan ahead.

Planning for care costs

The cost of care will undoubtedly differ depending on the type of home, the type of care and location. A good starting point when considering planning for fees is to consider all of these aspects to help determine what the likely costs could amount to and begin putting a savings plan into place to help meet future costs of care.

Lasting Power of Attorney

Arranging a Lasting Power of Attorney – one for Financial affairs and one for Health and Welfare will be vital. This enables individuals to appoint someone they trust to manage and look after their affairs when they are in a position where they can’t do it themselves. When it comes to care, an attorney will be able to advocate with social services and other authorities to ensure everything is in line with the wishes of the donor.

Lifetime trusts

There are certain types of trusts which can be set up in lifetime to help mitigate inheritance tax, where planning in this area is of concern, but also enable access for the donor/settlor.

So, for example, a discounted gift and income trust can be used where the individual requires access to set amounts, usually on a monthly/quarterly/annual basis. Under this type of arrangement, regular predetermined amounts are paid to the donor/settlor and they can then use the funds to pay towards funding care fees.

An alternative option which could be considered is a loan trust. Under this type of arrangement, it is usual for the donor/settlor to make an interest free cash loan to trustees which is repayable on demand. The trustees would invest the funds. However, they have the ability to make loan repayments on an ad-hoc basis whenever funds are required. This means that it is possible for the donor to have access to these funds to help pay for care fees.

Finally, some providers offer specific long-term care plans where the donor/settlor may become entitled to payments depending on whether they meet certain criteria in the future. This type of arrangement can provide some certainty for the donor/settlor if they believe they may satisfy the criteria and require additional funds for care fees in the future.

Investment bonds

Under the Care and Support Statutory Guidance, which supplements the Care and Support (Charging and Assessment of Resources) Regulations 2014, the surrender value of a life insurance policy is currently disregarded as capital (provided there has not been deliberate deprivation - please see below) for the purposes of the means-test. Single premium investment bonds will usually be treated as policies of life insurance for these purposes. (Although, note that investment bonds that have no element of life cover, such as capital redemption bonds, would not be disregarded and their full surrender value would be included as capital.)

The taxation structure of a bond may also be particularly favourable, especially if the investor can use accumulated 5% allowances to pay for any fees if required.

A word of warning…

Generally, even though it is possible for clients to set up trusts and even make gifts, they should be wary that any planning they carry out shouldn’t fall foul of the deliberate deprivation rules. Broadly, if someone intentionally (i.e. with the intention of avoiding paying care fees) gifts a lump of money, uses chargeable assets to invest in a non-chargeable asset, such as a single premium investment bond, or transfers the title deeds to their property to someone else, a local authority can look at whether they have done this to avoid paying a contribution towards social care fees. If the local authority concludes this has taken place, it has powers to treat the individual as if they still possess the assets/original assets – this means they would still include the value of those assets when carrying out any means test assessment.

Summary

This article provides a general overview of the changes that are due to come into force and outlines some of the planning opportunities which could be considered. It is inevitable that planning in this area is likely to become more popular for many individuals who ought to seek advice early to consider the options available to them.

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