Prime Minister Andy Burnham is facing pressure to definitively rule out a so-called 'death tax' to preemptively quell concerns over funding social care reform. The revival of the National Care Service concept has resurrected fears of a new levy on inheritances, a move that could lead to double taxation for some estates.
Burnham has initiated a review of social care, aiming for a public consultation next year and seeking cross-party support for reforms. He has acknowledged the urgency of addressing the "dereliction of duty" by previous governments and the personal financial devastation faced by families whose assets are depleted by care costs. "People can see everything they worked for wiped out by the cost of care," Burnham stated.
The funding of adult social care has long been a contentious issue. Current means-testing requires individuals with assets exceeding £23,250 to pay for their own care, a threshold that critics argue can bankrupt families. Previous attempts at reform have faltered over two decades.
In 2011, Sir Andrew Dilnot proposed a lifetime cap on care costs of £35,000 and a higher means-test threshold. The subsequent Conservative government under David Cameron opted for a £72,000 cap and introduced the 2014 Care Act, though its full implementation was delayed. Later, Theresa May faced backlash for a 2017 manifesto proposal termed a 'dementia tax.' Boris Johnson's government introduced a cap in 2021, funded by a 1.25% Health and Social Care Levy, which was later scrapped by Liz Truss. Rishi Sunak and Jeremy Hunt postponed the cap's implementation to October 2025, a date which then fell to Keir Starmer's administration, which canceled the cap and deferred the issue.
Now, Burnham is advocating for a system where "everybody paid a little" rather than relying on a lottery of unpredictable costs. He has previously suggested that a 10% levy on all estates could fund a National Care Service, potentially replacing inheritance tax. However, this proposal has raised concerns about taxing smaller estates below the current £325,000 inheritance tax threshold, while potentially reducing the tax burden on larger estates.
Critics warn that if a new social care tax is introduced alongside existing inheritance tax, many estates could face double taxation. Complications arise further with new rules on pension pots, which could be subject to income tax upon withdrawal after being included in the taxable estate. This could result in a 10% social care tax, a 40% inheritance tax, and income tax on pension withdrawals, a scenario described as a "terrible solution" likely to provoke significant public opposition.
To avoid a vacuum of speculation and potential backlash, there is a call for immediate clarity on inheritance tax policies and a firm commitment to preventing any form of double taxation on estates, ensuring that necessary social care reforms can proceed without becoming mired in new tax disputes.