Deprivation of assets
Discussion
Hi,
A 'friend' has purchased their mothers house (for market value) and are planning on using this as their pension provision. The property is then rented back to the mother, presumably using the proceeds from the sale to pay the rent and cover the mortgage payments. The mother is still fit and well and in early 60's. Whether the rent is market value, I am not sure?
Will the local authority come after them for deprivation of assets, in the case of future care home costs, even if this is 20 years away?
Any on-line search seems to indicate selling under the market value to fund this type of scheme would be classed as deprivation of assets. No mention of selling at market value. To me, it should make no difference and it is still deprivation of assets.
Or is it a really good idea?
Mike
A 'friend' has purchased their mothers house (for market value) and are planning on using this as their pension provision. The property is then rented back to the mother, presumably using the proceeds from the sale to pay the rent and cover the mortgage payments. The mother is still fit and well and in early 60's. Whether the rent is market value, I am not sure?
Will the local authority come after them for deprivation of assets, in the case of future care home costs, even if this is 20 years away?
Any on-line search seems to indicate selling under the market value to fund this type of scheme would be classed as deprivation of assets. No mention of selling at market value. To me, it should make no difference and it is still deprivation of assets.
Or is it a really good idea?
Mike
There's no deprivation of assets in that scenario. But it obviously doesn't work for exactly that reason; the mother still has assets for the Council to appropriate.
She needs to then give the cash away, but then she'll hit the same issue with the Council, and also be unable to pay the rent.
She needs to then give the cash away, but then she'll hit the same issue with the Council, and also be unable to pay the rent.
paulrockliffe said:
There's no deprivation of assets in that scenario. But it obviously doesn't work for exactly that reason; the mother still has assets for the Council to appropriate.
She needs to then give the cash away, but then she'll hit the same issue with the Council, and also be unable to pay the rent.
I think the idea is that in 20 years time, the cash assets from the sale of the house will be sufficiently depleted paying off the mortgage. Rent would 'presumably' drop to zero and ownership of house transferred to my friend.She needs to then give the cash away, but then she'll hit the same issue with the Council, and also be unable to pay the rent.
I suppose it is like DIY 'in the family' equity release? It just seems a 'relatively' easy way to avoid care home costs. I wonder what the mortgage repayments costs are like over the term of the mortgage - maybe it doesn't make sense??
mike9009 said:
I think the idea is that in 20 years time, the cash assets from the sale of the house will be sufficiently depleted paying off the mortgage. Rent would 'presumably' drop to zero and ownership of house transferred to my friend.
I suppose it is like DIY 'in the family' equity release? It just seems a 'relatively' easy way to avoid care home costs.
I wonder what the mortgage repayments costs are like over the term of the mortgage - maybe it doesn't make sense??
Para 1. She is reliant on the son keeping to his side of the bargain.I suppose it is like DIY 'in the family' equity release? It just seems a 'relatively' easy way to avoid care home costs.
I wonder what the mortgage repayments costs are like over the term of the mortgage - maybe it doesn't make sense??
Para 2. Yes, it's exactly the same. As long as she is fit and healthy and not likely to need care in the foreseeable future, everything should be ok. To be absolutely sure, get her to have a medical. I know someone who successfully defended himself against the council. He was able to prove that the purchase of his mum's house was not to avoid care costs, as she was healthy when the house was bought (at market value).
Para 3. If property prices increase as they have, and if she pays the mortgage monthly payment in rent, it should be better than money in the bank.
Historic property prices...
https://www.nationwide.co.uk/about/house-price-ind...
There's more than one way to do this, my uncle (when in his early 80s) put his house into trust with me as the beneficiary but with him having a life time right to use the house. He no longer effectively owns the house.
There is no hard and fast rule on deprevation of assets, its a judgement that can only be made at the timel, my uncle did this when he was widowed and he had a medical to show he was in good health for his age - in essence a reasonable thing to do at the time.. If he knew he was needing to go into care, it would have been called out, if he lives in the house for 20 years it would be no issue, its where the tippining point is but thats often based on what is known and when, he's been there now for 3 years and I think time has demonstrated this wasn't an attempt to deprive assets, if he'd ended up in a home a year ago it might have been challenged as someone in the 80s has a strong chance of needing care in the near future.
You've gone about it in a different way, but the type of arrangement they've entered needs to be reasonably demonstrable as being fair, ie buying the house for half the market value might be seen as a problem if that happened, but only if her situation becomes such that the deprevation of assets comes up (although the fees on the house sale might be questioned if massively under valued). Now she's swapped the house for cash she can gift to the limits every year etc if she so wanted, but the option my uncle took may have been a smarter route if the objective is to try and reduce inheritance tax and reduce the risk of it all going on care home fees in the future..
There is no hard and fast rule on deprevation of assets, its a judgement that can only be made at the timel, my uncle did this when he was widowed and he had a medical to show he was in good health for his age - in essence a reasonable thing to do at the time.. If he knew he was needing to go into care, it would have been called out, if he lives in the house for 20 years it would be no issue, its where the tippining point is but thats often based on what is known and when, he's been there now for 3 years and I think time has demonstrated this wasn't an attempt to deprive assets, if he'd ended up in a home a year ago it might have been challenged as someone in the 80s has a strong chance of needing care in the near future.
You've gone about it in a different way, but the type of arrangement they've entered needs to be reasonably demonstrable as being fair, ie buying the house for half the market value might be seen as a problem if that happened, but only if her situation becomes such that the deprevation of assets comes up (although the fees on the house sale might be questioned if massively under valued). Now she's swapped the house for cash she can gift to the limits every year etc if she so wanted, but the option my uncle took may have been a smarter route if the objective is to try and reduce inheritance tax and reduce the risk of it all going on care home fees in the future..
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