Reading time: 6 mins

---

For a long time, planning for later life came in three neat, separate parcels. You sorted out your will. You thought about inheritance tax, if it applied to you. And, if it ever became necessary, you dealt with care costs as and when they arose. Three different conversations, often with three different advisers, at three different points in life.

That approach is starting to break down — and for good reason. Over the past year, two significant changes have landed at almost the same time: the government’s long-promised cap on care costs has been scrapped, and from April 2027, most unused pension funds will be brought into the scope of inheritance tax for the first time. Individually, each is a big deal. Together, they create a genuine planning dilemma that touches almost every family we work with in Suffolk and Norfolk.

This article explains what’s changed, why the two issues are more connected than they first appear, and what it means if you’re thinking about your own later life planning.

What’s happened to the care costs cap

For several years, successive governments promised a cap on the amount any individual would have to pay towards their own social care — a long-overdue reform first proposed after the 2011 Dilnot Commission, and repeatedly delayed since. That cap has now been shelved, with ministers describing the original scheme as unworkable in practice.

The practical effect is straightforward, if unwelcome: there is still no ceiling on what someone might pay for their own care. If you need residential or nursing care in later life and you have assets above the relevant threshold, you may need to fund some or all of that care yourself, for as long as it’s required. For many families, that is the single biggest unquantifiable risk in their entire financial plan — more so, in many cases, than inheritance tax.

What’s changing with pensions and inheritance tax

Separately, from 6 April 2027, most unused defined contribution pension funds will form part of your estate for inheritance tax purposes when you die. Until now, pensions have generally sat outside the estate — one of the few tax-efficient ways to pass on wealth. That’s changing, and it’s a significant shift for anyone who has built up meaningful pension savings and assumed they would pass to their family free of inheritance tax.

Unsurprisingly, this has prompted many people to consider drawing down their pension earlier than planned, or gifting money to children and grandchildren during their lifetime, on the basis that a gift you survive by seven years falls outside your estate altogether under the normal rules for lifetime transfers.

On its own, that’s a reasonable response. The complication starts when you bring care costs back into the picture.

Where the two collide

Here’s the tension. If you draw down pension funds and gift them away to reduce a future inheritance tax bill, and you later need funding for care, your local authority can look at that gift when assessing what you can afford to pay. This is known as “deprivation of assets” — where a council decides that money was given away, at least in part, to avoid paying for care, and treats it as if you still owned it for means-testing purposes.

Two details make this particularly awkward when set alongside the pension changes:

• The two rules run on different clocks. For inheritance tax, a gift is generally safe once you’ve survived it by seven years. For care fee assessments, there is no equivalent fixed time limit in England — a council can, in principle, look back much further if it believes deprivation of assets has occurred. A gift made specifically to get ahead of the 2027 pension changes could be entirely effective for inheritance tax purposes and still be unwound years later for care funding purposes.
• The stakes are higher without a cap. Because there’s no longer a ceiling on care costs, the amount at risk if a gift is successfully challenged isn’t a fixed, known figure — it’s potentially the full cost of care for as long as it’s needed.

Put simply, some of the very steps that make sense for inheritance tax planning can create new risk when it comes to care funding, and vice versa. Planning for one in isolation, without thinking about the other, is now more likely to produce an outcome nobody wanted.

Why this calls for joined-up planning, not quick fixes

None of this means gifting or pension planning should be abandoned — far from it. It means the decisions need to be made with the full picture in view, rather than reacting to a single headline or a single rule change. A few things are worth bearing in mind:

Timing and motive matter.

A pattern of gifts made suddenly, shortly after a change in the rules, with no other explanation, is more likely to attract scrutiny than a long-standing, gradual pattern of giving as part of a wider financial plan.

Pensions, property, savings and investments now need to be considered together.

A decision about when to draw your pension can no longer be made without asking what it means for your estate, your potential care needs, and your family’s future access to that money.

A Lasting Power of Attorney remains essential regardless of any of this.

Whatever happens with tax rules or care funding, having the right people legally able to make decisions on your behalf — for both property and financial affairs, and for health and welfare — is the foundation that everything else sits on top of.

Advice should span both areas.

A conversation that only covers inheritance tax, without reference to care funding, is incomplete. So is a care fees conversation that ignores the tax consequences of the money involved. This is precisely why we bring tax, accountancy and legal expertise together under one roof — because these questions rarely respect the boundaries between professions.

What this means for you

If you have meaningful pension savings, own your home, and are thinking about how to provide for your family, it’s worth taking stock now rather than waiting until either a tax bill or a care need becomes urgent. That doesn’t mean panicking or rushing into gifts — it means having an honest, practical conversation about what you’re trying to achieve, what could realistically happen in later life, and how the various pieces — your will, your pension, your property, and your Lasting Power of Attorney — fit together.

At Jermyn Taylor, this joined-up approach is exactly how we work. Our team in Woodbridge and Norwich brings together over 20 years of tax, accountancy and legal experience to help you plan for later life clearly, calmly, and in plain English — without the jargon, and without the guesswork. Book a free consultation with us now.