Care fees and inheritance tax are usually thought about separately, by different advisers, at different times. For many families, they hit the same estate.
How the two interact
Care fees are paid during life, often from savings first and then the home. Inheritance tax is then charged on whatever is left above the tax-free allowances. With tax-free allowances frozen until 2031 and house prices up, more estates are affected by both.
Pensions from April 2027
Unused pensions have usually been outside the estate for inheritance tax. From April 2027 they're due to be included, which could push many more families over the threshold, and changes how pensions fit into care planning.
Why planning for one can undo the other
Steps that suit inheritance tax, like making gifts, can be treated as deprivation of assets if care was foreseeable. Steps that suit care planning can have tax consequences. That's why it makes sense to look at both together, with specialist advice.
What could the double hit cost your family? Try the care fees and inheritance tax calculator. For more on inheritance tax, visit Inheritance Tax Guide.
Frequently asked questions
Do care fees reduce inheritance tax?
They reduce the estate, so less tax may be due, but only because the money has been spent. It isn't a saving for the family.
What is the inheritance tax threshold?
Each person has a £325,000 nil-rate band and, if the home goes to direct descendants, up to £175,000 residence nil-rate band. Unused amounts can usually pass to a surviving spouse. These are frozen until April 2031.
Will pensions count for inheritance tax?
Unused pension funds are due to count towards the estate for deaths from 6 April 2027.
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