If the annuity payment rate on a purchased life annuity is increased because of the individual's poor state of health, the capital element of the annuity is treated as though the annuity were being issued at normal rates. This means that the rate enhancement is fully reflected in the tax levied.
Immediate care plans are one way of funding for care and can provide peace of mind knowing that care will be paid for as long as the client continues to need it.
An immediate care plan has the following advantages and disadvantages:
Advantages
- Peace of mind that a guaranteed payment will be paid for life towards care costs.
- Under current legislation, there is no tax on the payments if they are made to a UK-registered care provider. However, the rules governing tax may change in the future and could affect your client’s payments.
- Ringfencing a portion of your client's wealth so that you can protect your client's remaining assets.
- Flexibility around who the payment is paid to if your client changes care providers or no longer needs care.
Disadvantages
- Your client could get back less than they paid in.
- If your client no longer requires care, or becomes eligible for NHS funding, they cannot cancel their immediate-needs annuity. It can be paid directly to the individual, but may then be subject to income tax.
- Receiving payments from an immediate-needs annuity may affect your client’s ability to claim for means-tested state benefits.
All in all, while an immediate care plan is not the only way to fund care, it is important that clients are aware of that option when they are making a care funding decision.
Richard Cooper is the business development manager at the LIBF
