Thousands more people are likely to be hit with inheritance tax to pay for an extension in state support for elderly care, under new plans by the coalition.
The coalition is tomorrow expected to announce a three-year extension of the freeze in the inheritance tax threshold in a move that could affect 5,000 people.
Anybody bequeathing more than £325,000, or £650,000 for couples, has to pay 40 per cent tax on anything over those levels, which have not been raised since April 2009 despite inflation.
The move, extending the freeze to 2018, is intended to cover the £1bn cost of introducing a cap on the total amount anybody has to pay on social care.
The expected £75,000 cap is more than twice as high as the £35,000 limit suggested by the independent Dilnot Commission appointed by Prime Minister David Cameron to make recommendations on the highly-fraught issue.
Alongside the cap, Health Secretary Jeremy Hunt is to announce a large rise in the assets threshold beneath which people receive means-tested support meeting care bills.
Currently £23,250, that is set to rise to £123,000.
Speaking on BBC1’s Andrew Marr Show , he said the current situation was a “scandal”.
Mr Hunt said: “The point of what we are doing is to protect people’s inheritance. The worst thing that can happen is at the most vulnerable moment in your life you lose the thing you worked hard for, that you saved for, your own house.
“And what we are trying to do is to be one of the first countries in the world which creates a system where people don’t have to sell their own house.”
Every year 30,000 to 40,000 people are having to sell their houses to pay for their care costs,” he said.
“About 10 per cent of us end up paying more than £100,000 in care costs.”
Mr Hunt said it would be a “fully funded solution”, adding: “Finances are very, very much constrained at the moment and the fact that we are finding what might be as much as £1bn a year to do this, shows that we want to help those hard-working people who have saved all their life and suddenly quite randomly find that their house is at risk.”
The Association of British Insurers (ABI) said the reforms were a potential “step forward”.
Stephen Gay, the ABI’s director of life, savings and protection, said: “This is potentially another positive step forward in tackling the challenges of an ageing society.
“The cap and the higher means test give people greater certainty and will enable them to plan ahead for later life.
“What is important now is to work through the implementation of what is a complex system, and we are looking forward to working with government and the care sector.
“It is also vital that people clearly understand the cap and what costs are covered, and a national awareness campaign will be needed to make this happen.”
Town halls said the cap was a “positive step” but not enough on its own.
David Rogers, chair of the Local Government Association’s community wellbeing board, said: “A cap will help create more certainty, fairness and, in the process, peace of mind.
“We need a system that helps families with the cost of care in old age and protects them from the heartache of losing their homes to pay for it. We also need a system that encourages people to plan ahead, both financially and through healthy living to help prevent the need for care.
“We are concerned that the cap alone – which at £75,000 is considerably higher than the independent commission’s recommendation of between £25,000 and £50,000 – won’t address these issues.”
Mr Rogers added: “On its own a cap is not enough to sort out long-term care and will mean little if the starting point is a system that is massively underfunded and unable to cope with the pressures of our rapidly ageing population.
“Alongside sustainable funding we also need the wider reforms to make the system simpler and clearer.
“We remain concerned about the disproportionate financial implications this cap could have on councils in different parts of the country and would be encouraged if government looked to understand and act on this.”
Stephen Burke, director of United for All Ages which has been calling for a lower cap, said the £75,000 cap was “the dampest of damp squibs”.
“It is a con of the worst sorts. There are fairer and better alternatives. The government, for example, could have raised the capital threshold for paying for care to £200,000 or higher.
“The failure by this government to meet the care challenge means that the next government will have to sort this out to meet the care needs of our ageing population.”
Labour peer Lord Warner, who sat on the Dilnot Commission, said: “Essentially, we thought that the fairest way of doing this, and it wasn’t a precise science setting the cap, but we thought it was somewhere in that range, £35,000 to £50,000.
“At that level, give or take, you would actually mean on average no-one would have to dispose of more than about a third of the value of their housing assets.”