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.

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.

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.

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.

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

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

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?

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.

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? 😉

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. But might this not cause problems with HMRC? There are limits to what you can do only purely for tax purposes.

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.

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.

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.