‘Care Isa’ could encourage us to save more for old age

MINISTERS are considering launching a ‘care Isa’ to encourage people to save for old age.

The Government is considering a tax-free personal savings scheme that would be exempt from inheritance tax to cover the rising costs of caring for an ageing population.

At present, Isas are taxed at death, giving people an incentive to spend their savings rather than keeping them to fund their care.

The new proposals, set to be outlined in the Government’s forthcoming social care green paper, would allow any unspent funds to be passed on tax-free to the holder’s family without being subject to inheritance tax.

More than 12million people aged over 50 have save tens of thousands of pounds into Isas, according to figures obtained by Tory peer and former pensions minister Ros Altmann. More than 4.3million people over 70 have an average of £40,000 in Isa wealth. Baroness Altmann told The Sunday Telegraph: ‘If you haven’t spent your Isas before you pass away, the money will go into your estate and could be taxed at potentially 40 per cent, so if you have large sums in Isas, there is the perverse incentive to spend them before you die. There is a real danger that those who have set aside these savings will really regret not having kept it for possible care needs when older.

‘The majority of people do not realise the NHS will not be able to pay for their care.’

Experts say the social care system is in crisis and an estimated 1.2million frail or older people are not receiving the help they need. A long-awaited green paper – which was due to be published last month – is now set to be published in autumn and is likely to include a cap on contributions, allowing parents to pass on some of their wealth. Allowing people to take money out of their pension fund tax-free, if it is used for care, is also thought to be on the table.

At present, those with assets of more than £23,250 face having to spend their savings and sell their houses to fund their care. Critics say this is unfair because local councils pay for the care of those without assets.

Dr Sarah Wollaston, Tory chairman of the Commons health select committee, said she believed the care Isa would only work well for the wealthy. ‘This won’t solve the care crisis at all. There is no pooling of risk,’ she tweeted.

‘It only “solves” it for a small minority of wealthy people who can afford to invest and whose families benefit from paying lower tax on their inheritance if not used for care.’

The Department of Health and Social Care said: ‘Our green paper will set out our plans to reform the social care system to ensure it’s sustainable for the future.

‘In developing the green paper, we are looking at how we can support people with the costs of their care in a way that is fair to all generations.’