Planning for the next phase of your life can be incredibly exciting. You may start to look forward to dream holidays, new hobbies, or long-coveted home renovations.
However, when you focus on these goals, it’s easy to overlook more complex issues, such as the potential cost of care or the effects of Inheritance Tax (IHT).
On the other hand, you may find that you worry excessively about these challenges.
Both complacency and anxiety can undermine financial planning, especially when it comes to protecting your estate for your loved ones.
Making things even more difficult is the fact that there are several misconceptions surrounding care costs and IHT.
Continue reading to discover three of these common myths and some of the facts that dispel them.
1. “Social care is provided free by the NHS”
One widespread assumption is that the NHS will always cover the cost of care if you ever need it.
While state funding for care is available, the process can be complex and depends on your financial situation.
To qualify for state-funded care, you must first complete an assessment to determine the type of support you need.
This is followed by a financial evaluation, known as a “means test”, which considers your income, savings, and assets.
As of 2025/26, you will need to fund your own care if your assets exceed £23,250, known as the “upper capital limit” (UCL).
If your assets are below £14,250 – the “lower capital limit” (LCL) – you’ll only contribute what you can afford from your income, and your savings and capital are ignored entirely.
If your assets fall between these limits, you’d typically pay what you can afford from your income plus a means-tested portion of your assets.
If you assume that care is always free, you may fail to put aside sufficient funds to cover it. This could limit your options if you do require long-term support, all while reducing the inheritance you intend to pass to your loved ones.
2. “The residence nil-rate band won’t apply if I no longer live in my home”
Another common myth involves the residence nil-rate band.
As of 2025/26, the basic IHT nil-rate band stands at £325,000. Additionally, you may benefit from the £175,000 residence nil-rate band if you leave your primary home to a direct lineal descendant, such as a child or grandchild.
This effectively increases your total tax-free allowance to £500,000.
You may believe that the residence nil-rate band will no longer apply if you move into a care home, as it’s no longer your primary residence. In reality, the allowance tends to be more flexible.
Indeed, as long as the property was your main residence at some point, it may still qualify for the residence nil-rate band, even if you no longer live there when you pass away.
This is beneficial as your care needs will often create uncertainty about whether to keep or sell your home.
Knowing that your estate could still make use of the helpful residence nil-rate band could help you make more confident decisions and ensure your beneficiaries aren’t left with an unnecessarily significant tax burden.
3. “I can gift my property after moving to a care home, and it immediately won’t form part of my estate”
Rather than keeping your home when you move into care, you may consider gifting it to children or other loved ones.
You may hope that, by doing so, the property will no longer form part of your estate and won’t be liable for IHT.
However, the rules are slightly more complex. If you give away an asset but continue to benefit from it, it could be treated as a “gift with reservation”.
For instance, if you gift your home to a child but continue to live there without paying rent, it will typically remain within your estate for IHT purposes.
However, if you move permanently into care and gift the property, you are no longer benefiting from it. This means that the gift may be classed as a “potentially exempt transfer” (PET).
Typically, if you give assets within your lifetime and then pass away within three years and you had no remaining nil-rate band, your gift would be taxed at the standard 40% rate of IHT.
Meanwhile, if you pass away within three to seven years, the rate of IHT you pay may be measured on a sliding scale known as “taper relief”. The table below shows the different rates of IHT your beneficiaries might pay depending on how long you survive after making a gift:
| Years between gift and death | Rate of tax on the gift |
| 3 to 4 | 32% |
| 4 to 5 | 24% |
| 5 to 6 | 16% |
| 6 to 7 | 8% |
| 7 or more | 0% |
It’s vital to remember that gifted assets are usually the first element of your estate assessed against the nil-rate band. So, taper relief will only apply when you make gifts in excess of the nil-rate band. Otherwise, your gift likely won’t be entitled to the relief.
While gifting is a potentially helpful strategy for mitigating IHT, it requires careful consideration.
According to Lidder Care, 43% of residents are in care for less than a year, and just 27% stay for more than three years.
If you gift your property after moving into a care home but do not survive for more than seven years, the gift may still be liable for IHT.
Get in touch
Our team of independent financial advisers in Lewes is here to help you plan for later life, whether that’s achieving your goals, covering potential care costs, or managing an IHT liability.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.
Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.
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