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Financial Planning for Care

actnowNot everyone will qualify for NHS Continuing Healthcare Funding, in fact the majority of people will probably not qualify – at least not immediately.

If you don’t qualify for Funding then depending on the value of your assets, you may have to pay for the costs of your care.

To find out more about the current asset limits please visit our Social Care Funding page.

If you do have to meet the costs of your care then you can utilise your existing income, savings, deposits and investments.

There are also specialist insurance plans like Immediate Needs Annuities which, in return for a one-off lump sum payment, pay a guaranteed income for life. If income is paid direct to the care provider, it is tax-free.

You may also want to consider Equity Release as a way to raise capital against the value of your home.

However you decide to fund your care, you should always seek Independent Financial Advice from a specialist provider who understands the long term care market.

Immediate Needs Annuities

Immediate Needs Annuities provide a guaranteed income designed to meet the costs of your care. Like all Annuities, you pay a one off lump sum to purchase the Annuity. The cost of the Annuity will depend on a various factors including:

  • Your gender, age and health condition/medical history.
  • The amount of monthly income required to meet your care payments.

You can also choose a number of options within your Annuity to protect your income from inflation for example, or to protect part of the capital should you die in the first six months.

You should always seek Independent Financial Advice from a specialist provider who understands the long term care market.

We are a firm of solicitors and we do not employ Financial Advisers or provide financial advice.  Farley Dwek Financial Planning* have Independent Financial Advisers in your area who have the specialist expertise to work with you to plan for your Care Funding requirements and help you with Inheritance Tax.

If you would like us to make an introduction to one of our Independent Financial Adviser please do not hesitate to call us today on 0800 011 4136 or 0161 272 5222.

*Farley Dwek Financial Planning is a trading style of Cheetham Jackson Joint Ventures LLP, which is an Appointed Representative of Cheetham Jackson Ltd, who are authorised and regulated by the Financial Conduct Authority.

Equity Release

You may also want to consider an Equity Release option as a way to raise capital to pay for your care costs.

Equity Release schemes allow you to unlock the equity value in your property which will be released to you on a tax free basis. The amount you can release will depend on the value of your property, your age and health condition. Equity Release schemes allow you to retain ownership of your home whilst giving you the flexibility to move home or sell your home, with the advantage of not having to make any repayments.

When considering Equity Release, you should always seek Independent Financial Advice from a specialist provider who understands the long term care market.

We are a firm of solicitors and we do not employ Financial Advisers or provide financial advice. Farley Dwek Financial Planning* have Independent Financial Advisers in your area who have the specialist expertise to work with you to plan for your Care Funding requirements and help you with Inheritance Tax.

If you would like us to make an introduction to one of our Independent Financial Adviser please do not hesitate to call us today on 0800 011 4136 or 0161 272 5222.

*Farley Dwek Financial Planning is a trading style of Cheetham Jackson Joint Ventures LLP, which is an Appointed Representative of Cheetham Jackson Ltd, who are authorised and regulated by the Financial Conduct Authority.

 

Inheritance Tax (IHT)

It is important to note that setting up a Trust can protect your assets from the cost of social care BUT a Trust does not protect you or your relative from Inheritance Tax.

What is Inheritance Tax?

Inheritance Tax is usually paid on an estate when somebody dies. It’s also sometimes payable on trusts or gifts made during someone’s lifetime. Most estates don’t have to pay Inheritance Tax because they’re valued at less than the threshold (£325,000 in 2013-14). The tax is payable at 40% on the amount over this threshold.

Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies – to as much as £650,000 in 2013-14.

If your estate is worth more than the Inheritance Tax threshold – £325,000 for the 2013-14 tax year – there are some important Inheritance Tax exemptions that allow you to make gifts to others and not have to pay tax on them when you die.

How are lifetime gifts treated for IHT?

For Inheritance Tax, an individual who makes a gift during their lifetime may be treated as making:

• An exempt transfer; or
• A potentially exempt transfer (PET); or
• A chargeable lifetime transfer (CLT).

No IHT is payable on exempt transfers.

Potentially exempt transfers will only become subject to IHT where death occurs within seven years of the transfer.

Chargeable lifetime transfers are subject to IHT at 20% at the time of the gift if the value of the gift, plus any previous CLTs within seven years, exceeds the nil rate band. Where death occurs within seven years of making a CLT, IHT will be recalculated at the death rate of 40% but with credit given for any IHT paid at outset.

It is possible for a single gift to be part exempt and part PET or CLT. For example, a gift into a discretionary trust could be partially covered by the £3,000 annual exemption with the excess being a CLT.

Exempt gifts

You can make gifts to certain people and organisations without having to pay any Inheritance Tax. These gifts are exempt whether you make them during your life or as part of your will.

You can make exempt gifts to:

  • your husband, wife or civil partner, as long as they have a permanent home in the UK
  • a ‘qualifying’ charity established in the EU or another specified country
  • some national institutions such as museums, universities and the National Trust
  • any UK political party that has at least two members elected to the House of Commons or has one elected member, but the party received at least 150,000 votes

Gifts that you give to your unmarried partner, or a partner that you’re not in a registered civil partnership with, are not exempt.

The following IHT exemptions are available for gifts made during lifetime only:

Annual exemption – You can give away gifts worth up to £3,000 in total in each tax year and these gifts will be exempt from Inheritance Tax when you die. You can carry forward any unused part of the £3,000 exemption to the following year, but if you don’t use it in that year, the carried-over exemption expires.

Wedding gifts/civil partnership ceremony gifts – subject to certain limits:

  • parents can each give cash or gifts worth £5,000
  • grandparents and great grandparents can each give cash or gifts worth £2,500
  • anyone else can give cash or gifts worth £1,000

You have to make the gift – or promise to make it – on or shortly before the date of the wedding or civil partnership ceremony.

Small gifts – You can make small gifts up to the value of £250 to as many individuals as you like in any one tax year.

Regular gifts or payments that are part of your normal expenditure – Any regular gifts you make out of your after-tax income, are exempt from Inheritance Tax as long as you have enough income left after making them to maintain your normal lifestyle.

These include:

  • monthly or other regular payments to someone
  • regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries
  • regular premiums on a life insurance policy – for you or someone else

Gifts for education and maintenance. Lifetime transfers to a spouse or civil partner for his or her maintenance are exempt, as are certain payments for a child’s maintenance, education or training.

The seven-year rule – ‘potentially exempt transfers’

Any gifts you make to individuals will be exempt from Inheritance Tax as long as you live for seven years after making the gift. These sorts of gifts are known as ‘Potentially Exempt Transfers’ (PETs).

However if you give an asset away at any time, but keep an interest in it – for example you give your house away but continue to live in it rent-free – this gift will not be a potentially exempt transfer.

If you die within seven years and the total value of gifts you made is less than the Inheritance Tax threshold, then the value of the gifts is added to your estate and any tax due is paid out of the estate.

However, if you die within seven years of making a gift and the gift is valued at more than the Inheritance Tax threshold, Inheritance Tax will need to be paid on its value, either by the person receiving the gift or by the representatives of the estate.
If you die between three and seven years after making a gift, and the total value of gifts that you made is over the threshold, any Inheritance Tax due on the gift is reduced on a sliding scale. This is known as ‘Taper Relief’.

The importance of keeping records

It will help your executor or personal representative to administer your financial affairs when you die if you keep a record of any gifts you make and note on that record which exemption you’ve used.

It’s also a good idea to keep a record of your after-tax income if you make regular gifts out of income as part of your normal expenditure. This will show that the gifts are regular and that you have enough income to cover them and your usual day-to-day expenditure without having to draw on your capital.

What to do if you are concerned about Inheritance Tax?

If your assets are above the current £325,000 threshold, we recommend that you speak to an Independent Financial Adviser, for specific advice on the ways in which you can mitigate your Inheritance Tax liability.

We are a firm of solicitors and we do not employ Financial Advisers or provide financial advice.  Farley Dwek Financial Planning* have Independent Financial Advisers in your area who have the specialist expertise to work with you to plan for your Care Funding requirements and help you with Inheritance Tax.

If you would like us to make an introduction to one of our Independent Financial Adviser please do not hesitate to call us today on 0800 011 4136 or 0161 272 5222.

*Farley Dwek Financial Planning is a trading style of Cheetham Jackson Joint Ventures LLP, which is an Appointed Representative of Cheetham Jackson Ltd, who are authorised and regulated by the Financial Conduct Authority.

 

The contents of this page do not constitute financial advice. This has been prepared based on our current understanding of UK Law, Taxation and HMRC practice, all of which could be subject to change in future.

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