IHT - dementia care
Discussion
Hello
Firstly can annoying recommend a specialist solicitor in the IHT arena in the Oxfordshire areas?
Secondly, a steer from the PH massif on the following issues currently facing my wife/SIL and MIL.
My MIL is about to go into a dementia care home. Cost is approx £50k per annum. She has around £150k in savings and a house worth approx £220k. My wife has PoA and has unsuccessfully tried to get her mother to complete some tax efficient actions regarding IHT - e.g. trusts.
We are now in the position where potentially all of my MIL's savings and assets will be consumed through ongoing residential care. We are happy to support this as much as possible but also recognise that there are tax efficient ways of doing this with regards to the current assets.
In particular - I believe you can gift 2k per grand child per year. Is this correct, and can this be back dated?
Does the personal allowance come into effect. FIL died 12 years ago and allowance was unused as everything went to MIL?
When does the state claim for payment of residential care, is it after death, how do they calculate it?
Is it possible to sell the house today, declare the value to the estate/HMRC and then invest and keep any interest earned?
Would it be better to sell the house after death, assuming 5 years down the line as house price inflation would increase the value. Or would we just be giving more to the HMRC.
Could we rent the house and keep the rental income?
Could we refurbish the house using the PoA to allocate funds?
I will ask these questions of a suitable solicitor but a steer as to the validity of these points will make the value of the meeting significantly better.
thanks in advance.
Firstly can annoying recommend a specialist solicitor in the IHT arena in the Oxfordshire areas?
Secondly, a steer from the PH massif on the following issues currently facing my wife/SIL and MIL.
My MIL is about to go into a dementia care home. Cost is approx £50k per annum. She has around £150k in savings and a house worth approx £220k. My wife has PoA and has unsuccessfully tried to get her mother to complete some tax efficient actions regarding IHT - e.g. trusts.
We are now in the position where potentially all of my MIL's savings and assets will be consumed through ongoing residential care. We are happy to support this as much as possible but also recognise that there are tax efficient ways of doing this with regards to the current assets.
In particular - I believe you can gift 2k per grand child per year. Is this correct, and can this be back dated?
Does the personal allowance come into effect. FIL died 12 years ago and allowance was unused as everything went to MIL?
When does the state claim for payment of residential care, is it after death, how do they calculate it?
Is it possible to sell the house today, declare the value to the estate/HMRC and then invest and keep any interest earned?
Would it be better to sell the house after death, assuming 5 years down the line as house price inflation would increase the value. Or would we just be giving more to the HMRC.
Could we rent the house and keep the rental income?
Could we refurbish the house using the PoA to allocate funds?
I will ask these questions of a suitable solicitor but a steer as to the validity of these points will make the value of the meeting significantly better.
thanks in advance.
uknick said:
As her estate is currently below the IHT threshold for her of £1m (see answer 2), you don't need to worry about IHT but as you asked;
1. I believe you can gift 2k per grand child per year. Is this correct, and can this be back dated?
Don't know where you got the £2k figure from, but IHT rules allow you to gift £3k in total per tax year to one person without any IHT implications. You can carry forward the previous years's allowance. So in 2018-19 you could give £6k if nothing gifted in 2017-18. Plus you can give up to £250 to as many people as you want.
ok thanks
2. Does the personal allowance come into effect. FIL died 12 years ago and allowance was unused as everything went to MIL?
Yes, FIL allowance of £325k plus his main residence allowance of £175k (currently £150k rising to £175k from April 2019) can be transferred to the mother when she passes. So, from 2019-20 she'll get £1m to put against her estate.
3. When does the state claim for payment of residential care, is it after death, how do they calculate it?
She won't be eligible for state support as she has assets over £23k, so the council will expect her to pay the care home as soon as she enters care. If there are circumstances where the council will cover the cost initially, e.g. someone else over 60 is living in the property, or a dependent person lives there, the council will put a charge on the property and expect to be paid when it is sold.
by this question I meant, when does the council claim from the estate for residential costs. If we run out etc..
4. Is it possible to sell the house today, declare the value to the estate/HMRC and then invest and keep any interest earned?
As she's not dead yet, HMRC aren't interested in what you do with the estate. You can do what you want with it, as long as it's not a tax evasion scheme or illegal tax avoidance scheme.
5. Would it be better to sell the house after death, assuming 5 years down the line as house price inflation would increase the value. Or would we just be giving more to the HMRC.
How will the care home fees be paid if she lasts longer than 3 years, based on what you tell us about the annual costs and her cash savings.
same as other question. if we sell the house to a third party not related, and legitimately get market value for it, then spend all the money on care, but then she lives for a few more years, with nothing left in the pot, would that be ok?
6. Could we rent the house and keep the rental income?
If that will cover the care home fees for as long as needed
7. Could we refurbish the house using the PoA to allocate funds?
Again, do what you want in accordance with the POA. Although, as MIL no longer lives in house, I fail to see how this would benefit her.
we would need to refurbish the house to rent it, as it was last patient/decorated etc in 1977 and would be very difficult to rent as is. So I think this would benefit her as we are trying to raise an income to cover costs.
Having said all that, one thing you need to be aware of is deprivation of assets. If the council think you're taking out cash from the estate to avoid paying care home fees, they have the right to demand you make up the difference.
aware of this point thanks
1. I believe you can gift 2k per grand child per year. Is this correct, and can this be back dated?
Don't know where you got the £2k figure from, but IHT rules allow you to gift £3k in total per tax year to one person without any IHT implications. You can carry forward the previous years's allowance. So in 2018-19 you could give £6k if nothing gifted in 2017-18. Plus you can give up to £250 to as many people as you want.
ok thanks
2. Does the personal allowance come into effect. FIL died 12 years ago and allowance was unused as everything went to MIL?
Yes, FIL allowance of £325k plus his main residence allowance of £175k (currently £150k rising to £175k from April 2019) can be transferred to the mother when she passes. So, from 2019-20 she'll get £1m to put against her estate.
3. When does the state claim for payment of residential care, is it after death, how do they calculate it?
She won't be eligible for state support as she has assets over £23k, so the council will expect her to pay the care home as soon as she enters care. If there are circumstances where the council will cover the cost initially, e.g. someone else over 60 is living in the property, or a dependent person lives there, the council will put a charge on the property and expect to be paid when it is sold.
by this question I meant, when does the council claim from the estate for residential costs. If we run out etc..
4. Is it possible to sell the house today, declare the value to the estate/HMRC and then invest and keep any interest earned?
As she's not dead yet, HMRC aren't interested in what you do with the estate. You can do what you want with it, as long as it's not a tax evasion scheme or illegal tax avoidance scheme.
5. Would it be better to sell the house after death, assuming 5 years down the line as house price inflation would increase the value. Or would we just be giving more to the HMRC.
How will the care home fees be paid if she lasts longer than 3 years, based on what you tell us about the annual costs and her cash savings.
same as other question. if we sell the house to a third party not related, and legitimately get market value for it, then spend all the money on care, but then she lives for a few more years, with nothing left in the pot, would that be ok?
6. Could we rent the house and keep the rental income?
If that will cover the care home fees for as long as needed
7. Could we refurbish the house using the PoA to allocate funds?
Again, do what you want in accordance with the POA. Although, as MIL no longer lives in house, I fail to see how this would benefit her.
we would need to refurbish the house to rent it, as it was last patient/decorated etc in 1977 and would be very difficult to rent as is. So I think this would benefit her as we are trying to raise an income to cover costs.
Having said all that, one thing you need to be aware of is deprivation of assets. If the council think you're taking out cash from the estate to avoid paying care home fees, they have the right to demand you make up the difference.
aware of this point thanks
JulianPH said:
Hi
Firstly, sorry to hear about your circumstances. I must be very difficult for everyone involved.
This is not my area of expertise but I can give you some pointers. I would call Jonathan Wright at Richard Nelson LLP Solicitors in Bristol. If he can't help you then he will point you to someone who can. I highly recommend him based upon my own experience.
For pointers, The total annual IHT exemption for gifts is £3,000. It is (IIRC) no longer based upon the recipient(s), but the donor(s). It can be back dated for one financial tax year only (so there is £6,000). Junior ISA contributions could add another £4k a year per child to this (a strange quirk that I don't believe has been fully tested).
When you say personal allowance, do you mean IHT allowance? This has changed and now allows for unused allowances to be passed on.
I am sorry, but I have never experienced your third question so cannot give you any pointers here.
Any interest (or rental income) would be subject to income tax and IHT. This is not a good route to go down.
I also cannot answer the remaining questions. Eric may come along and provide you with his significant knowledge and experience in such matters.
In a nutshell, your situation is complex and legal advice is not only worth seeking but should pay for itself many times over. If the assets in question are £370k then the IHT is going to be between zero and £18k.
I believe your question should therefore be more focused on care home planning (and it actually was, so sorry!). If your wife has PoA for your MiL then I would suggest she used it to take the maximum out of your MiL's estate free of both IHT and care costs.This would reduce her capacity to pay for her care (which, in my opinion, she already has).
Honestly, this is an area you need legal advice upon.
The very best, Julian
ok thanks, and thanks for the lead on a solicitorFirstly, sorry to hear about your circumstances. I must be very difficult for everyone involved.
This is not my area of expertise but I can give you some pointers. I would call Jonathan Wright at Richard Nelson LLP Solicitors in Bristol. If he can't help you then he will point you to someone who can. I highly recommend him based upon my own experience.
For pointers, The total annual IHT exemption for gifts is £3,000. It is (IIRC) no longer based upon the recipient(s), but the donor(s). It can be back dated for one financial tax year only (so there is £6,000). Junior ISA contributions could add another £4k a year per child to this (a strange quirk that I don't believe has been fully tested).
When you say personal allowance, do you mean IHT allowance? This has changed and now allows for unused allowances to be passed on.
I am sorry, but I have never experienced your third question so cannot give you any pointers here.
Any interest (or rental income) would be subject to income tax and IHT. This is not a good route to go down.
I also cannot answer the remaining questions. Eric may come along and provide you with his significant knowledge and experience in such matters.
In a nutshell, your situation is complex and legal advice is not only worth seeking but should pay for itself many times over. If the assets in question are £370k then the IHT is going to be between zero and £18k.
I believe your question should therefore be more focused on care home planning (and it actually was, so sorry!). If your wife has PoA for your MiL then I would suggest she used it to take the maximum out of your MiL's estate free of both IHT and care costs.This would reduce her capacity to pay for her care (which, in my opinion, she already has).
Honestly, this is an area you need legal advice upon.
The very best, Julian
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