Deprivation of assets??

Documenting that it is done to avoid care home fees is definitely an issue. There's an example somewhere of a council that did successfully challenge a gift from many many years ago as the solicitor notes saud something about avoidance of care fees as the reason it was done.

That’s true, but you are not supposed to give anything away with the sole purpose of avoiding IHT. It’s always “to help with school fees” etc,and I wondered whether documenting that it was purely to avoid tax would lead to problems. (Avoidance is legal, Evasion is not, if I’ve got that the right way round).

It’s not just houses, it’s any gift “with reservation of benefit”. Eg buy a car in your son’s name but keep it at your house and use it yourself.

There are no limits on giving away monetary gifts or assets, as long as you live for 7 years there is no IHT to pay.

The only issue is if you give away your home but continue to live in it / don’t pay proper rent, that doesn’t matter if it was 20 years ago - people try all sorts of tricks like joint or TiC ownership with children then it creates an unholy mess further down the line if the child divorces or dies first.

If they can prove it was done for IHT purposes, i.e. there would be IHT due on first/both deaths then the LA wouldn’t have a leg to stand in if they tried to say DOA. But might this not cause problems with HMRC? There are limits to what you can do only purely for tax purposes.

If their house is worth more than £325k then by the time the 2nd one dies, there would be no IHT on an estate worth £1million.

If they can prove it was done for IHT purposes, i.e. there would be IHT due on first/both deaths then the LA wouldn’t have a leg to stand in if they tried to say DOA.
They could give £12k between them this year by using this and last year’s allowances and that wouldn’t count for IHT should they die within 7 years.
The only issue is if they die within the 7 year period as the gifts above the allowances would then become part of the estate and liable for IHT, I believe you can take out insurance to cover that.
Regular gifts of cash would also be impossible to prove, who’s to say what the cash was spent on? 😉

No.

Gifts that come under the 7 year rule are treated as if they were still part of the estate. So they may or may not push the estate over the IHT allowance.

Is IHT due on gifts that come under the 7 years if no IHT due on estate anyway?? And the amounts given would still put them under that level by a long way?

Capital gains will apply on any house gifted but not lived in as well and with the new rates and the uplift in house prices it could be a nasty shock

mid 70s i would say if they set aside £600,000 each then giving away additional would be reasonable. £600,000 covers mist care costs for 1 person . If they dont need care it keeps the estate close to inheritance tax limits. This can include the house for the 2nd £600,000 but a fair amount needs to be in cash

It’s both. If it’s done to avoid care fees, it’s deliberate deprivation of assets, and for tax purposes, it’s a gift with reservation of benefit, so if they die within 7 years of moving out/ceasing to benefit, the house will still be considered part of their estate and included in calculations for inheritance tax

If your parents gave away their house but still live in it, I'm afraid the 7 year IHT rule won't apply - unless they have been paying market rent and the people receiving that rent have been paying income tax on it

The value of the house will be included in their estate as though they had never given it away in the first place.

It's called a Gift with Reservation of Benefit.

My parents were advised to do something similar.

it’s only deprivation of assets if there is an expectation of care when the gift was made. As mine did it in their 60’s when they were extremely fit and well it isn’t DOA as it wasn’t done to avoid care home fees.

it’s not tax avoidance as they’re now in their 80’s, so have survived the 7 years for IHT.

IHT and DOA are completely separate. DOA can go as far back as needed. If one of my parents had Parkinson’s for example, when they drew up the paperwork the LA can go back the 20 years and recover the assets, as there would have been an expectation that care would be needed with that diagnosis.

That makes no difference to anything.

If there was no proof of ill health/ known need for care, the it's got fuck all to do with anyone else what that person spent their money on and the council can't do anything.

Most people don't need care anyway, and here we have both parents still alive, healthy and in their 70s. Their life expectancy is another 12 or so years.

On the other hand, there's no 7 year rule either for deprivation of assets - the council can look as far back as they want to.

I work in a care home and can categorically say that the residents finances are checked over the previous 7 years.Mental Capacity and financial transactions are checked to look at trends .

It's called a gift with reservation of benefit

Your example sounds fine and not deprivation of assets but there may be tax due now (cgt) or iht due if they died within 7 years

Deprivation of assets doesn't apply just because a person is in their 70s.

This is called deliberate deprivation. As PPs have said it's seen as tax evasion/ avoidance essentially because the previous owner still gains advantage (ie lives in) the property.

I’ve got a slightly different take on it. If they need the money for care in the future, it is much better if they have enough money to pay for the standard of care they would like than have to rely on the care the council is willing to pay for. Unless I’ve entirely misunderstood your question. Been through this with my parents and I was very glad they had the money for good care at the end of their lives. It did mean most of the money was spent on it but that is as it should have been.

If a house sale isn't a large chunk of their assets, then it seems unlikely they'd fall below the free care threshold anyway? If you're not that wealthy, then savings or pension income of 23k a year might be huge, but if you're wealthy enough for a second hone to be a small part of your estate, then you're quite likely to be receiving investment income over 23k a year anyway, I would have thought? In which case DOA wouldn't apply.

Realistically if you have £££ you can choose your care home. If not you cannot choose it and then send the bill to the local authority!

All those people who think they are being clever here. Do you want the LA to choose your home, where you live etc?

I think ctg tax applies here

It's not an uncommon attitude.

However it can bite you in the backside.

If the LA is funding your care then they also dictate the care you receive and if needed the residential care you go to.

Forgot looking at which care agencies you use or looking around the nicest care homes in your locality.

You'll be allocated to services which meet the (unrealistic) funding budgets.

This is also true when your funds run out - which people also need to consider.

Your parents might be able to afford the best care - but for how long?

Once the funds run dry the LA won't fund a top end care home £££. They will be moved to the £ one.

@Watchagotch72

My parents, for example, are in their mid-70s. Both in good health, neither requiring any kind of care, both leading busy, retired, active lives. If they give money to my sister and I now, for inheritance tax reasons, it won’t count as deprivation of assets in the future, right?

As per my post above you need financial advice, but generally speaking the issue per the circumstances above will likely come down to how much they choose to gift you and how much their estate is worth.

For example if their estate (inc property) is worth £500k giving you and your sister £25k each now is unlikely to provably a DOA especially if there is a good reason (for example for a trust fund for grandchildren's education).

If they gave away £250k then an argument against DOA starts to look thin, because irrespective of their good health now, it's not unreasonable in their 70's to expect that they may need care in the not too distant future.

Care home fees can be between £700-2000 per week depending on the location and prestige of the facility.

A couple can easily burn through £100k per year. So giving away a substantial amount of assets whilst claiming ignorance of this is hard.

My neighbours definitely did it as a deliberate DOA. Very much of the attitude that "only stupid people pay for care".