The Edge

Richard Northedge takes on corporate finance

Long-term care squeezes the rich until their pips squeak

The funding of long-term care is a blatant tax on the rich. Well, there’s no point taxing the poor – they don’t have any money. But the rich should get used to paying into the pot and getting nothing back.

The government intends using inheritance tax to fund the cost of providing long-term care. People dying with assets exceeding £325,000 (which is not really rich, given southern house prices) will be taxed at 40 per cent on the excess. But because they have more than £123,000 of assets they would not be entitled to claim the care costs.

The well-off are used to paying more into the pot than they get back, but at least with council tax they still benefit from street-lighting and planning controls or with road taxes they drive on motorways. But with long-term care, the very people forced to pay for it will be barred from receiving it. So they pay for themselves - then pay for everyone else.

If a government wants people to respect the tax system – and not evade duties – that is an odd way to seek it.

Before the last general election the chancellor promised to lift the inheritance tax threshold to £1m. That went down well with those middle-classes who aspire to financial comfort and resent the state confiscating the fruits of their rewards.

By now freezing the starting point at £325,000, the Conservative party has abandoned the richest end of the social strata. Instead it is sucking up to Middle England by raising the savings-threshold from £23,000 to £123,000 before people have to pay their own bills. Perhaps it thinks the rich will all vote Tory anyway while it needs to win electoral support from the less wealthy floating voters.

However you look at it, this seems cynical politics and bad taxation. But expect much more of it: all inheritance tax, almost capital gains tax and the overwhelming bulk of income tax is paid by a very small group of well-off people. George Osborne will squeeze them again and again (“until their pips squeak,” as a former chancellor said) because they’re the only ones with money and there are few votes to lose.

The best hope for those wanting to avoid inheritance tax is that they have to spend so much of their own money on their own long-term care that their wealth falls below the tax limit.

One comment on “Long-term care squeezes the rich until their pips squeak”

  1. Sam says:

    Richard the UK is a welfare state and where those with money pay for those with less. It is a pointless exercise for a welfare state to hand out welfare to everyone (ie universal benefit). It’s just a circle where the inefficiencies of the state and tax system bleed money.

    Your argument concerning street lighting and other infrastructural benefits is completely valid - as is the case for rich people seeing the benefits of their payments by way of health provision, policing and defence.

    Care provision is however an element of the welfare state, if the rich don’t like the new set-up they must, based on the above observations, either seek for a shrinking in the size of the welfare state or just accept their role in it i.e pay for others with no expectation of receiving benefits in return.

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