Frank O'Donnell

Middle income families could encounter a 10% ‘death tax’ levy to pay for social care of the elderly, in a proposal being discussed by Government.

Health Secretary Andy Burnham yesterday said he wanted to see those with bigger houses pay more to provide for the old.

Whether a loved one had required any care or not, up to 17m families would be forced to pay the tax.

A 10% tax raid would leave the relatives of middle income earners with estates worth £500,000 with a £50,000 bill when their relatives die. This would be on top of an inheritance tax bill of £70,000.

Critics condemned the plans, saying they would penalise those who had saved all their lives. The Tories warned the true tax bill could be even higher, because a 10% levy would raise £4.5bn, only a third of what is needed to pay for caring for the elderly.

 Mr Burnham will set out proposals to tackle the problem of an ageing population in a highly-anticipated White Paper in three weeks. But yesterday he unveiled the three main options for raising money:

• A 10 % levy to be paid from an estate on death;  

• Means-tested amounts to be paid across the whole of retirement; or

• The option of deferring pensions for three years to pay into a new National Care Service.

Every person over 65 would be guaranteed a free residential care home place if they needed it and any home help before that is necessary. The average 65-year-old today can expect to need care costing £30,000 – with the burden on women averaging £40,400 and men £22,300.

Senior Labour sources confirmed that a compulsory 10% levy, if introduced, would be capped at £50,000 on estates worth £500,000 or more.

The payment would be on top of inheritance tax, which comes in at 40% on estates worth more than £325,000. Although details have not been worked out, it appears there would be no lower threshold before the ‘death tax’ kicked in.

The payment would be ‘per estate’, not per person – meaning a husband and wife would only pay once, probably after the second death.

Concerns some people would be able to avoid paying the death tax in the same way that many dodge paying inheritance tax, such as by putting money in a trust for their children.

At the moment, 2.5m households qualify for inheritance tax. The Tories said the new tax would mean 14.5m more being caught by death duties.

Under the current system, all the elderly with assets of more than £23,000 are expected to pay for the full cost of social care and many have to sell their homes.