Integrating Care Fees Planning Into Inheritance Tax Planning

Integrate Your IHT And Care-Fees Planning For A Better Financial Future 

Inheritance tax and the cost of care when you are elderly: neither are subjects any of us like to dwell on for too long. It’s not just a question of the financial toll though, as they both often elicit an emotional response too. Sometimes it feels safer to avoid difficult conversations and planning for things we would rather not acknowledge, like old age, death, and taxes.

Not planning doesn’t make these things disappear or resolve themselves. Not planning can potentially lead to all sorts of avoidable losses and missed opportunities.

Care costs can be substantial, and erode away at wealth that has been built over decades. Inheritance tax can also minimise the amount of money available to future generations – and even cause hardship. Effective planning, however, can mean more peace of mind and a better financial future.

Integrated inheritance tax and care fees planning

Planning separately for inheritance tax and care fees is better than not planning for them at all. But integrated planning can be even more effective – both financially and emotionally.

Looking at care fees and tax planning from an emotive point of view can lead to:

• Assumptions that care costs ‘won’t apply’
• Waiting until care becomes necessary before seeking advice
• Relying on your will to minimise your tax exposure
• Making gifts without understanding the future implications
• Relying on plans made in the past being sufficient despite changing circumstances

These are commonly made mistakes. You probably have friends or relatives who have found themselves in difficult situations that could have been avoided with the right planning. The good news is, no matter how early or late you start, there is still time to make a difference. And the earlier you start, the more potential benefits you can reap.

Inheritance tax planning matters even more as thresholds remain the same

Under current UK rules, the nil-rate band is £325,000. This means that if what you have left when you die – your estate – is worth less than £325,000, you don’t need to pay inheritance tax. Anything above this threshold will generally be taxed at 40%.

If you leave your main home to direct descendants, you could benefit from the residence nil-rate band of up to £175,000 too. This means you could have a tax-free threshold of up to £500,000. If you are married or in a civil partnership, unused allowances can be transferred, taking it to £1 million for a couple.

IHT thresholds have been frozen for years

These inheritance tax thresholds have been frozen for many years (since 2009 and 2021 respectively), and will remain so until at least 2031 under current rules. At the same time, property and asset values have risen significantly, along with the cost of living. This means more and more families are becoming liable for inheritance tax. Understanding the thresholds and rules – and the implications of planning and not planning – means you can make informed decisions about IHT to protect the people you care about.  

It can be particularly upsetting if, during a time of grief, families discover much of the wealth they assumed would be available will be going on tax bills instead. Planning gives you and your loved ones more clarity and control.

Care fees can erode family wealth

There are various types of care available, from residential and nursing home care to ongoing support in your own home. Fees are continuing to rise as demand increases and people live longer with more complex needs. What people need will depend on many factors and can rapidly change: costs can escalate quickly.

These costs often have to be met from savings, investments, and even property – before inheritance tax planning even comes into play. With the right financial strategy in place, however, you can help protect your options and choices, preserve your wealth, and make decisions on your own terms.

Paying for care can undermine previous tax planning strategies

Care fees can shrink your estate. The average cost of residential care for a year in the UK is £67,496¹ . This rises significantly if you need nursing or more complex care. The longer you leave your planning, the more impact it can have on your options and flexibility. Care-home-fees planning can make all the difference.

IHT and care-fees planning tools

These are some of the things that can help you protect your wealth and plan for both inheritance tax and care fees:

• Lifetime gifts and exemptions

These should be made with full knowledge of the benefits and risks and awareness of care fees.

• Trusts

Putting money into trust can be a positive measure but this can also create issues. Knowing what the implications are before you make any decisions is key.

• Pension planning

Pensions can become a sort of ‘bridging’ asset between IHT and care planning. Set up appropriately for the circumstances, they can help fund care when needed without increasing inheritance-tax exposure or forcing the sale of other assets. If not, they can have the opposite effect.

• Lasting power of attorney*

Lasting powers of attorney can protect decision making as well as your finances.

• Short-term planning versus long-term planning

It’s never ideal to make decisions when you are under pressure. Long-term planning helps you avoid this happening.

Building an effective, integrated plan

Your plan should take into consideration what matters to you and your family and include:

• Clear objectives for wealth, family support, and future care
• The flexibility to adapt as circumstances change
• Regular reviews rather than one-off decisions
• Professional guidance to balance tax efficiency with care-fee rules

Reviewing your IHT and care-fees planning with a professional

Good planning protects your choices, dignity, and family relationships – not just your assets. Doing nothing is still ‘a plan’ – and this can be the most expensive one of all. Is it time to revisit your plans for inheritance tax and care fees? Whether you have plans for none, one, or both, after a budget is always a good time to review where you are and where you’d like to be.

At Paula Bicknell Wealth we’re always here to help you make the right financial decisions for your circumstances. Why not get in touch?

¹ Source https://www.carehome.co.uk/advice/care-home-fees-and-costs-how-much-do-you-pay dated 20th February 2026.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. 

The levels and bases of taxation, and reliefs from taxation, can change at any time.  The value of any tax relief is generally dependent on individual circumstances. 

*Please note that advice given in relation to a Power of Attorney will involve the referral to a service that is separate and distinct to those offered by St. James's Place and along with Trusts are not regulated by the Financial Conduct Authority.

Advice in relation to Care Fees Planning may involve a referral to Karehero, a comparison and care matching provider, whose services are separate and distinct to those offered by St. James's Place. 

Although the content of the article was correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.