Writing as a care home owner with 25 years’ experience of running four care homes, I am disappointed at the lack of joined-up thinking from Government with regards to social care policy and delivery.
As my thoughts turn to beginning to plan for my own retirement in the future, I am alarmed by the impact of the proposed IHT changes on an already fragile sector. The UK care home sector is facing multiple challenges, and the number of care home beds is not keeping pace with the rising demand from an ageing population.
Recent destabilising cost pressures, not least the increase in employers’ National Insurance, are mounting and, as local authority funding dwindles, coupled with staffing shortages and regulatory uncertainties, these pressures are driving a trend towards small home closures.
Last year there was a total net increase of only 86 beds as small homes closed and larger facilities opened. Taking account of demand, this means the overall capacity is decreasing, despite the growing need for all types of care homes, particularly long-term care for older people with more specialist complex needs such as dementia.
The majority of care home providers in England and Wales are small, independent businesses – often single-home owners or operators with just a handful of homes. Out of approximately 11,300 care homes for older people in the UK, about 75% of care home providers in England own just one home, accounting for roughly 38% of all care home beds.
Many care homes, especially medium-sized groups, are family-run businesses, deeply embedded in their local communities. These owners play a significant role in the sector’s total supply, especially in rural or small market towns.
New rules for IHT
From April 2026, Government is reforming UK Business Property Relief (BPR) for IHT. Previously, qualifying business assets could often be passed on with 100% IHT relief, regardless of value.
Under the new rules, 100% relief will apply only to the first £2.5m of qualifying business assets per individual. Any value above £2.5m will receive 50% relief, resulting in an effective IHT rate of 20% on that excess.
In the absence of available surplus cash – and most pressured care homes with modest margins do not have this – there is little likelihood of paying IHT. Most small businesses could not viably sustain this burden even over 10 years, especially as tax could only come from surplus income (which is already subject to corporation tax). Other IHT allowances remain frozen, exposing more estates to IHT as asset values rise with inflation.
For small, family owned care homes, many of which have seen their property and business values rise only with inflation, these changes are devastating. A business owner with an estate worth £10m (not uncommon for a care home property asset paid for over 25 years) could face an IHT bill of around £2m, compared to little or no tax under the previous regime.
This would create an impossible cashflow pressure, as IHT is payable quickly after death, potentially forcing the family to sell the home and/or care business assets just to pay tax. The policy threatens business continuity, will destroy family transition, discourages reinvestment and, ultimately, will lead to more closures.
The combination of the key prevalence of attentive family run providers against an already shrinking supply of care home beds, and now the increased burden of finding cash to pay IHT, poses the most serious threat ever made to the future sustainability of social care for older people, especially from the key family run care businesses.
As the population continues to age and the need for specialised care grows year on year, the risk that more small providers will be forced out of the market, reducing choice, capacity and quality at a time when these are desperately needed, is disturbing. An urgent policy review is absolutely critical, not just to ensure the long-term viability of the UK’s care home sector but to maintain choice, quality and diversity for older people.
How will the proposed IHT changes affect you? Share your thoughts in the comments section below.
Geoffrey Cox is Chief Executive Officer at Southern Healthcare. Email: [email protected] Linkedin: @Geoffrey-Cox