Deprivation of assets??

[Watchagotch72]

I keep reading different things about this and how local authorities define it. My specific question is : under which circumstances is the giving away of assets considered to constitute ‘deprivation’ ? Is there a general rule relating to the care expectations of the person at the time the asset is given away?

if the older person is in good health, no care needs, no current diagnosis of anything significant, are they free to give away whatever they want?

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?

hope this makes sense.

Maybe not.

Gifts (up to £3k per year total?) from current income are normally disregarded as are gifts on occasion of marriage and certain other regular gifts to DC and GDC.

Other more valuable gifts may remain liable to IHT (seven year taper) or be considered deprivation of assets depending on how much and how often (and what proportion of the giver's assets the gift represents.

Might be best for your DParents to pay for proper advice about implications of they types of gifts they are considering.

No/one can give you a definitive answer as deprivation is a complex area. If your parents wealth is such that they are inheritance planning then they probs my have a lawyer/financial advisor who is helping with this. I'd suggest they talk to a specialist inheritance lawyer to ensure they take the next steps they can at this state.

Age concern have a series of helpful notes which may be a good starting point for you.

https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs40deprivationnofassetssinsociallcarefcs.pdf

Having been through something similar I believe (not a lawyer) the following is applicable.

if there is no expectation of care, parents fit and well, they can gift you whatever they like. If they survive 7 years after the gift, it becomes exempt from IHT.

the oft-quoted £3k is the amount per year you can give away with no tax implication or consideration for IHT. Anything over that will be included in IHT calculations.

if they know they may need care at some point- one of them has a chronic illness for example, then giving anything away other than usual gifts may be considered deprivation of assets. There is no time limit on this.

so, for example, someone who moves an elderly parent into their own home due to increasing care needs, and uses proceeds from the sale of their parents house to build an extension and do home improvements. If that parent survives 7 years there is no IHT. If they don’t, iht will be payable. If they ever need assistance with care, or go into full time care, the LA can and will force the sale of the property to recover the money the elderly parent has invested in it to pay for their care.

A good option is for them to take advice on how much is reasonable to keep available to cover potential care needs, and plan accordingly. If they can "show their working" in eg 10 or 15 years time, that they have X amount invested representing Y x Z years estimated are expenses, for reasonable values of Y and Z, then it would be hard to argue deprivation of assets if that investment proves not to fully cover care needs that arise down the track.

There are also different rules around giving gifts out of income and out of capital. If they're wealthy enough, they can make unlimited gifts out of excess income which are exempt from IHT, as long as these are regular and don't affect their own standard of living. I don't know whether that would be seen as deprivation of assets though.

Previous neighbours signed over their house to their 2 grown-up children in a bid to avoid paying any care fees in the future. So they technically have no assets. They said it was all perfectly legal. This was maybe 10 years ago.

My auntie did that then both of my cousins got divorced in the same year and suddenly the ex daughters in law has claim to a quarter of the house each, it was a messy disaster.

Essentially they use a test of reasonableness and look at patterns of spending over time. Elderly parents giving a child several thousand to help pay for a wedding, for example, would likely be considered reasonable. Regular transfers of money to pay for grandchildren’s school fees, or consistent gifts of a few hundred at birthdays and Christmas likewise. But your parents clearing the majority of their savings to give to you, or signing over the house they live in to you, with no credible explanation of why they’d done this, would very likely be concluded as DOA (which you admit is the purpose.)

Oh it's legal to sell your property, or even give it away.

But it can be deprivation of assets or seen as tax evasion (IHT) unless the parents have moved out of the house and are paying a full market rent for wherever they do live now.

Do not do this without proper legal/financial advice that explains all the implications fully. What is legal can still attract whopping bills down the line.

I think giving you and your sis a chuck of money when your parents have no care needs on the horizon should not be an issue. My mum gave me and siblings a chunk after she inherited money in her 70s.

As pp has said the local authority really will not like your parents signing away their house.

Should say chunk ofmoney

My aunt and uncle did this and it was disastrous. My uncle went into a care home and then about a year later my auntie died. The local authority wanted to know why they had been living in a house owned by their children.

It was fully investigated and it was absolutely awful as my cousins were reeling from her unexpected death.

There was not they could say. They had houses. This house was their family home fron forty years previously. There wasn't a reason they could give that they now owned it instead of their dad but he had been living in it.

As pp's have said it's a complicated area.

Also a lot of people get confused between inheritance tax obligations and DOA.

In respect of DOA the LA has an obligation to prove that this was the primary motivation for the financial gifts.

That's not actually always that easy but it's often possible because people make silly decisions.

The key issue is to consider circumstances and wealth.

A heathy couple in their 60's gifting 20% of their wealth is unlikely to hit a DOA threshold.

By contrast a couple in poor health in their 80's who give away 75% their wealth is going raise a lot of questions that would be likely to be answered by DOA without some very specific rationale (one I was made aware of was a couple who paid for private medical care for their grandchild).

Ultimately it's not something anyone from MN can advise you about without having full disclosure of your parents assets, age, health etc etc.

You need to get reputable financial advice.

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

@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.

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.

Thanks all.

For context, the money in question would come from the sale of a second / holiday home overseas. It isn’t a huge part of their overall estate, and not their main residence.

I think ctg tax applies here

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?

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.

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.

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.

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.

It's called a gift with reservation of benefit

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 .