Big changes on Inheritance Tax are looming. But, according to new research, the biggest concern right now for over-55s when it comes to passing on their wealth is paying for their care in later life.

Landmark legislation now coming down the road means that long-standing reliefs on Inheritance Tax (IHT) are disappearing. Not least, unused private pension funds and death benefits will be added to an individual’s estate for IHT calculations.

These updates mean that many more families, business owners and savers will be pulled into the IHT net over the next few years.

But new research, conducted by YouGov for wealth management and employee benefits firm Mattioli Woods, shows a very different picture when it comes to what is worrying over-55s most when it comes to passing on their wealth.

In fact, the new research highlights that that over-55s ranked paying for care or later-life costs as their primary worry – putting that above Inheritance Tax, the risk of running out of money in retirement, ensuring fairness between beneficiaries and potential family disputes.

In contrast, the priorities for younger age groups are quite different. Those aged 35 to 44 are most concerned about paying too much Inheritance Tax, while those aged 45 to 54 are most worried about running out of money during their lifetime.

Why is care such a concern?

Quite simply, the enormous cost of paying for care privately for those who have more than £23,250 in capital assets. (An individual’s house is ignored if their husband, wife, or civil partner still lives there, or a dependent relative.)

In the UK, according to carehome.co.uk, the average annual cost of a private, self-funded care home ranges between £67,496 for standard residential care and £79,820 for nursing care.

These averages mask some major differentials between regions.

Residential care in London averages £80,496 and nursing c is £91,468 pa. In the North East, the same care would cost £57,824 and £65,728 respectively.

If you receive care in your own home, the £23,250 threshold still applies, but the value of your property is not counted in local council financial assessments.

And how about planning for IHT?

Despite Inheritance Tax featuring prominently among financial concerns, many remain unprepared for the changes on the horizon, according to the research. Almost a quarter (23%) of those who responded to the survey say they have never assessed whether their estate could be subject to Inheritance Tax, while 22% believe it will be.

In fact, the government has estimated that the IHT changes on pensions due next April will:

• Affect around 213,000 total estates with pension assets.
• 38,500 estates will see an increase in their existing tax bill, averaging about £34,000 more per estates.
• 10,500 estates will start paying inheritance tax for the first time.

Why proactive planning might be needed

Yasin Patel, Wealth Management Director at Mattioli Woods, said: “People naturally worry about whether they’ll have enough money to fund later-life care, particularly as people are living longer and care costs continue to rise.

“For many families, maintaining financial independence in retirement understandably takes priority over what happens to their estate afterwards. But focusing solely on funding later life can mean Inheritance Tax planning slips down the priority list.

“Proactive planning can help ensure more wealth reaches future generations rather than being lost unnecessarily through poor preparation.”