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Inheritance tax: could it be used to fund long-term care?
- Author:
- LLOYD James
- Publisher:
- Strategic Society Centre
- Publication year:
- 2011
- Pagination:
- 23p.
- Place of publication:
- London
In recent years a number of stakeholders have advocated a new inheritance tax to pay for an increase in social care spending and the abolition of means-testing. However, there has been less detailed analysis of the benefits and challenges to this approach. This report addresses this gap by examining in detail key policy design choices for this model, and some of the arguments for and against using a new inheritance tax to fund universal free care and support in England and Wales. As noted by supporters, a new inheritance tax for care and support would be relatively simple, as well as administratively feasible given the scope to scale up the existing probate system. However, problems with this approach include: significant uncertainty as to what extent households would respond to the new tax by shifting wealth and reducing their liabilities; issues around closely tying social care revenue streams to fluctuations in house prices; and, the so-called ‘carer penalty’ – the imposition of the tax on the estates of those who have only relied on informal care, frequently provided by carers who have foregone earnings to do so. The paper also examines variations on the inheritance model, including: providing exemptions for recipients of informal care; directing inheritance tax revenue to a social insurance fund; and, the use of an estate-charge, rather than a tax, to fund care and support.