Inheriting Granny’s House

Selling the House to Pay for Social Care

There is much protest about the proposed cap on social care costs of £86,000. This is unfair on people living in northern towns where the average house can cost £126,000. Dementia sufferers will have to sell their house to fund their care, the protesters say. This is not “levelling up” because people who live in the south of England will not have to pay such a high proportion of their assets. The average price of a terraced house in Kent is £342,724 according to Rightmove.

There was further fury when it was revealed that contributions from benefits will not count towards the cap. The £86,000 is to be paid from personal assets, not from any government grants.

Don’t rush it

At the start of the debate in the House of Commons on this Bill, its second reading, Damian Green, MP for Ashford, was one of the first speakers and he said there needs to be an impact analysis on these proposals.

Several other MPs added to this, deploring that extra details, such as the proposals above, were only made apparent in the Government reaction to the amendments, just before the debate commenced in the Commons. Why do a rush job on something that will affect families for decades to come?

Sale takes place after death

Reading newspaper remarks about patients losing their houses, what floats into mind is an elderly person coming back from hospital and finding someone else has taken over her home. But in fact local authorities usually lend the money against the security of that asset.

So the sale only takes place after the patient’s death, at the point of bequest. So this is really a matter of what families were expecting to inherit, not about depriving the still-living Granny of her house.

Getting on the property ladder

This asset is becoming more and more important to assist younger families on to the property ladder. For the first time, the value of a deposit for a mortgage (usually 25%) is now more than the average annual salary.

This means that many young families have no hope of getting on the property ladder. ‘The Bank of Mum and Dad’ can sometimes help, especially if they have recently inherited from an older family member. Actually from the figures above, at least the 25% deposit would be saved after the cap is paid, whether the inherited house is in the North or in the South.

The cause of the unfairness is the difference in house prices between north and south. This does not matter so much for getting on the housing ladder if northerners stay in the north for generations and southerners stay in the south, both inheriting a fair proportion for the price of houses. But this is not good for the social mobility that unites a nation.

Also, further calculations reveal that a northern family with a low price home would only be able to help one younger heir with a deposit, whereas a southern family would be able to help two or three.

Tories Torn

The protests this last week around the Commons debate, especially the large numbers of Tories who abstained or voted against, may force the Government to adjust the calculations.

Significantly, Andrew Dilnot who produced the expert report in 2012, also declared the current proposals unfair. It is now rumoured that the Tories might return to a cap and taper more like Dilnot’s.

What did Dilnot recommend?

Firstly, it is to be noted his report does not support counting benefits towards the cap. All benefits for the individual pensioner in residential care were to be paid across for living costs (so called hotel costs). He also recommended cutting some benefits for pensioners (such as the winter fuel allowance) to put some savings into the increased national budget for social care.

He suggested removing the unfairness that some end-of-life illnesses qualify for NHS palliative care but people with dementia in residential care do not. So his report recommends that even those under NHS residential care should pay the hotel costs from their pension benefits.

What killed his proposals ?

With regard to the cap, he recommended abolishing the complicated system of different rates for different local authorities (according to local calculations of housing and care costs) and having a well-publicised national system.

Anyone with assets above £100,000 would have to pay for their social care in full – and this is what probably killed his proposals due to protests from the South.

Ten Year Taper

The local authority would pay for anyone with assets below £14,500. Anyone with assets over £14,500 and up to £100,000 would have to pay towards social care. The system would work with a taper of £1 a week for every £250 of assets between £14,500 up to £100,000.

So someone at the top end of this taper at £85,500 would pay £17,784 in the first year, with countable assets reduced to £67,716 by year 2 and so on. Under such taper calculations, by year 10 the inheritable asset would be the £14,500 plus £3,271 remaining in the taper.

Is it still unfair that some people live longer and so have less to bequeath to their heirs?

Who should pay more ?

Dilnot, an economist, was responding to the need to get more money into the care system. That need is even more pressing today. Some of this is to come from increased National Insurance charges (in two years hence). It is, however not enough without enhanced contribution from those who have the assets. Note that monthly average costs for a resident in a care-home is £2,816 rising to  £3,552 for nursing home care. 

When the proposals come back to the Commons at the third stage, expect to see a taper introduced. Then get your calculators ready.