will the government help itself to nearly all your savings?

elizw

it will if you go into a care home - it is my one greatest fear of getting older
someone I know lost £2000 per month until she had less than £19000 left - if she hadnt died then they would have taken half the value of her house as well. - something needs to be done about this.

dunstonh

It can be done with tax planning. If you dont plan, then really its your own fault as there are things you can do to avoid this.

elizw

but a lot of people cant - it shouldnt be necessary -

Milarky

Slightly widening this topic, the government might consider adopting some kind of "pre-payment discount" to grey voters.

For instance. Inheritance Tax: Instead of taking 40 percent of amounts over £275,000 in the deceased's estate great chucks of liabilty could be 'bought- back' during their lifetime (say from age 65 up.) The gov't would get some money and the pre-deceased would get some way towards reducing their ultimate tax bill. Both partys have something to gain from such an approach.

Suppose the offer was £3 added to the threshold for every £1 voluntarily handed over (to pay for nursing home places for other elderly or whatever), and that this prepayment was itself subject to earnings indexation? Thus paing £1 over would result in a present discounted value of £1.20 (£3 less at 40p) and this would itself be subject to 'real growth' (over prices) of about 1.5% pa. Living an average of 15 years beyond 65, for instance, and paying in about £3,000 pa (c/f the ISA alternative) This would raise a present discounted (i.e. 'real') sum of £31,000 for HMG. In exchange the 'real' present-day value of the increase in the IHT threshold would be £124,000 and - since tax at 40% is not taken from this - that represents a 'benefit' of £49,600 for the OAP. To get to the same position using an ISA (tax free growth) vehicle would require a nominal growth rate of 6.37% (real growth of about 3.9%). This compares well with ISA but this would be in addition to the use of ISAs. But then by 'decumulating' savings there is the added benefit that these savings won't themselves 'exist' and so add to the final value of the estate. Say your ISA gets 5%. Then you will be taxed on the value in this - which after 15 years growth stands at a 'real' value of about £45,000. That is how much 'larger ' your estate has become in 'real' terms than it would have done by decumulation simply as a result of 'real' interest rates. That increases the 'benefit' from about £50k to about £95k. Of course the option of giving away £3000 per annum (twice for a couple) already exists under the IHT provisions so that the sort of scheme suggested here really stands comparision on the basis that it would offer additional benefits - and incidentally lead to pensioners 'giving' their money to the state rather than their adult children (and what if they have no children?) who thereby benefit from the effect of such philantrophy after their parent's death(s).

[This is just one way in which the govt might try reform.]

dunstonh

but a lot of people cant - it shouldnt be necessary -

Its not that they cant but they cant be bothered.

seven-day-weekend

Dunstonh....could you please clarify - how can tax planning stop my home being sold for care fees? I'd really like to know.

Debt_Free_Chick

elizw wrote:

it will if you go into a care home - it is my one greatest fear of getting older
someone I know lost £2000 per month until she had less than £19000 left - if she hadnt died then they would have taken half the value of her house as well. - something needs to be done about this.

I look at this another way .... the Government has no money, only what it collects from me and other taxpayers. If someone has the means to pay for their care home fees, they should do so and not expect me to pay for it.

jem16

Debt_Free_Chick wrote:

I look at this another way .... the Government has no money, only what it collects from me and other taxpayers. If someone has the means to pay for their care home fees, they should do so and not expect me to pay for it.

Another view;

You work all your life and you pay tax. You try to save/invest for your retirememnt, often with difficulty as you probably have a large mortgage and family commitments and your savings/investments get taxed. You get your pension that you saved hard for and it gets taxed. You're unlucky enough to need care and all your savings pays for your care and then your house gets used. If you're lucky enough not to need care, you get hit with IHT because of the high value of houses and the low IHT threshold.

Meanwhile those who chose not to save etc get everything paid for, at least in part from all my taxes.

Where is the incentive to save and work?

dunstonh

seven-day-weekend wrote:

Dunstonh....could you please clarify - how can tax planning stop my home being sold for care fees? I'd really like to know.

It's something a solicitor can do and doesnt come under financial advice. Although I have been involved in a few cases where this has been done but my bit was on the investment side. So excuse my lack of correct terminology and may not be exactly spot on with the process.

My understanding is that the property is held tenants in common and on death of first spouse their half of the property is placed in trust with the surviving partner being allowed to remain in the property. Apparantly a council cannot force sale of the house to pay for care home charges when the property is not owned outright and is part in trust. Three councils (all central London) have attempted to go to court on this but have failed. So, this prevents the property being used to care home fees.

As I said,the specifics are done by the solicitors. So a solicitor would be in a better position to answer that with the exact terminology and process.

seven-day-weekend

A friend of mine who is a consultant geriatrician in the NHS, when faced with the argument 'I've worked all my life and paid taxes' answers, 'fine....you haven't paid enough'.

This is another take on it.

lewt

dunstonh not every1 is as knowlegeable as you and i don't think its about not being bothered at all. its the fact that information not exactly advertised or available is it?