Thousands of elderly people in England may choose to sell their homes early because of Theresa May’s decision to include the value of property in means-testing for social care funding, analysts say.
In the party’s manifesto this week, the Conservatives announced plans to include the cost of your home when assessing how much you should pay for care. Under the present system, anyone with assets worth more than £23,250 is expected to pay the full cost of care, whether in a care home, a nursing home, or their own home. However, the value of your house is taken into consideration only if you need residential care — if you receive care in your own home, it is not counted.
Under the Conservatives’ plan, which affects people living in England, anyone with less than £100,000 in assets, including property, would not have to pay for any kind of care — but with nine out of ten homes worth more than £100,000, the reality is that more people will have to foot care bills. People will not have to pay for the charges until after their death, which, critics say, amounts to a death stealth tax.
Lawrence Bowles, an analyst at Savills, the real estate agency, says the move could encourage elderly people to sell their expensive homes earlier and downsize to reduce their property assets and pass some of their equity on to family.
“Traditionally, older people have only downsized when illness or bereavement has prompted a change, holding on to their family home for as long as possible to pass on to their children. With the change in policy, they could be passing on the poisoned chalice of a home with a large care bill attached. Beneficiaries will need to choose either to settle the care bill with cash or to sell the property. We think this will encourage older people to downsize much sooner, potentially passing on cash early. This could have the benefit of freeing up housing for second-steppers looking for family homes,” he says.
Controversially, the Tory manifesto confirmed that a planned £72,000 cap on care costs, which had been mooted for 2020, will be scrapped — raising concerns that the costs will continue to spiral.
According to LaingBuisson, the healthcare researcher, as of last year, 360,000 older people were receiving long-term home care and 11,000 short-term home care. At present 421,100 people are in care homes.
Some have welcomed the social care proposals, indicating that costs should be passed to those who can afford to pay without them being forced to sell their homes while they are still alive. Others say that different regions of the country will face widely varying burdens because of discrepancies in the costs of housing.
Jeremy Leaf, formerly the residential chairman of the Royal Institute of Chartered Surveyors, says: “Presumably some form of equity release or loan arrangement will have to be negotiated and repaid, which does sound a bit like a death tax. The change may result in more, rather than fewer, people selling or renting if costs prove prohibitive.”
The social care changes are part of a triple whammy for pensioners in the Tory manifesto, which also includes plans to means-test the winter fuel allowance and to change the pensions triple lock — which guarantees that the state pension will rise by the higher of average wages, inflation, or 2.5 per cent — to a double lock, removing the 2.5 per cent. Labour, the Liberal Democrats and the SNP said they would retain the triple lock.
We asked some experts for their views on how to prepare for the plans.
The main message is to act with extreme caution. Sit down as a family and take decisions carefully — and don’t rush into anything. “I would encourage families to get together with their children and think about accelerating inheritance planning and how they might start dividing their monies,” says Jonathan Harris, the founder of Anderson Harris, the mortgage broker.
The proposals are complex and will take a long time to put into action. Plus they’re in a manifesto, and manifesto promises do not always become reality. Tom McPhail, the head of policy at Hargreaves Lansdown, the wealth manager, says: “This policy spans a very large number of government departments and everyone is going to have their say. It’s not going to happen quickly.”
He adds that there is an obvious hazard in taking early decisions. “You could be in care for ten years or six months, and your assets could change greatly in that time,” he says.
Sell up and downsize
Some may be tempted to sell their home quickly to safeguard money for their family. “A lot of elderly people are in big houses that they do not need, and the later they leave it the more upheaval they will have in selling the family home,” Mr Harris says. He and other advisers, however, urge caution on this front. “We are at least a year away from this policy becoming a reality, and much can change in that time,” Mr McPhail says.
Free up equity
Reducing your stake in your home, to generate cash that you can pass on to your children or grandchildren, may become a more attractive option.
With younger generations struggling to get on to the property ladder, equity-release mortgages are the fastest-growing type of home loan on the market. There are 97 equity release deals available. The lowest fixed-rate loans are from the Scottish Building Society at 2.74 per cent. It also has a 1.99 per cent variable rate.
Charlotte Nelson, an expert at Moneyfacts, the financial data analyst, warns: “Committing to an equity release deal shouldn’t be taken lightly and anyone considering this option should to seek advice from a financial adviser.”
Transfer your home
Lindsey Kutten, the innovation director at Pricewaterhouse Coopers, the consultant, says some people may consider transferring property into the names of their children or grandchildren to avoid post-death means- testing. However, she warns that when doing so you should be careful of inheritance tax.
“If you are trying to transfer property to your children but still live in the property, there are all sorts of anti-avoidance rules and it does not prevent inheritance tax from applying,” she says.
Don’t give away too much
Many elderly people are keen to give their wealth away early, but miscalculate how much they need while alive. Patrick Connolly, the head of communications at Chase de Vere, the financial adviser, says people may be putting their lives in jeopardy by hastily giving away too much of their assets. “Many say ‘I can get the money back in the future’, but it often does not work out like that because it has been invested in a loved one’s property or because a family relationship is complicated.”
Beware the regional lottery
Where you live will dramatically change the effect of the Tories’ care plans because of the varying costs of housing. Research by Royal London, the life insurance and pensions company, headed by the former Liberal Democrat pensions minister Steve Webb, suggests that in the southeast, 68 per cent (£211,514) of the value of the average home would be paid in care costs before the £100,000 threshold was reached.
In London that figure would be 79 per cent (£371,742 of an average house price of £471,742). In the east of England it would be 64 per cent, and 58 per cent in the southwest, but only 18 per cent in the northeast, where the average house price is £122,298. In the northwest, it would be 33 per cent of the value of an average £150,250 home.
Mr Webb warns: “Without an overall cap on care costs, those who need care for a long period of time could see more than half the value of their home taken by care bills. Paying for care looks set to become a regional lottery.”
‘Waive the stamp duty’
Tammy Thomas, 35, lives in Muswell Hill, north London, with her husband Stephen and daughter, Harper. She feels the Tory manifesto was a missed opportunity. “The government should consider incentives that can create more housing,” says Tammy. “For example, waive the stamp duty on older people who are downsizing. This will encourage them to sell, so younger families can get on the ladder.”
Meanwhile Christopher Jackson, 67, of Littlehampton, West Sussex, says: “Means testing the fuel allowance is a good idea. I also agree with the double lock on pensions. I disagree with continued austerity. We need to speculate a little to keep a civilised society.”
Other manifesto promises that will affect your finances
● The Conservatives will means-test free school lunches, provide free breakfasts for all primary school children and press ahead with their plans to create more grammar schools.
● Labour would scrap university tuition fees and reintroduce maintenance grants, at a cost of £11.2 billion.
● The Liberal Democrats would increase school budgets and the pupil premium for disadvantaged children and give local councils more control over admissions and new schools.
Private pensions abuse
● The Tory manifesto pledges to give pension schemes and the pensions regulator the right to scrutinise, clear with conditions, or even stop mergers or takeovers that threaten the solvency of the scheme. The pensions regulator will also have the power to fine those found to have “wilfully” under-resourced a scheme.
● The Labour manifesto contains a similar promise and pledges regulation to penalise tax advisory firms that help to facilitate tax evasion or avoidance.
Pay and taxation
● The Tories would increase the threshold at which you start paying income tax to £12,500 and raise the level at which you pay the higher rate to £50,000 by 2020. The national living wage would rise to 60 per cent of average earnings by 2020. Corporation tax would be cut to 17 per cent and executive pay packets would be subject to annual votes by shareholders. Listed companies would have to publish executive pay rates.
● Labour would increase taxes for the top 5 per cent of earners, those earning more than £80,000. Corporation tax would be increased from 19 per cent to 26 per cent by 2020-21 as part of an overall plan to raise an extra £48.6 billion a year in taxes.
● The Lib Dems would put 1p on income tax to boost funding for the NHS. Corporation tax would increase to 20 per cent.
● The Tories will place a “safeguard cap” on the most expensive gas and electricity tariffs.
● Labour has pledged to renationalise the energy industry and to cap prices.