Inheritance tax

[countyhall]

Please can someone advise: my Morher is about to sell her family home as she's moved into sheltered accommodation. She would like to give my brother and I the entire proceeds from the sale - expected to be £150k total, split between two of us, so circa £75 each. She also has savings of approximately £100k.

My question is around tax: if she gives us the proceeds from the sale, is this liable to tax if her entire estate is only £250k? I assume as it's below the threshold of £320k that the following applies -

"You can hand over as much as you want, to anyone you want, in the form of "potentially exempt transfers". As their name suggests, these are only potentially exempt from IHT. Under the rules, if you live for seven years after making them they are exempt; if you die within seven years they will be added to your estate and, if the estate is worth over £325,000, the gift will attract some IHT".

Many thanks.

IHt only applies if estate over £325k or up to £650 if any unused amount from a spouse
Could be an issue if she is making a claim for care costs in the future

Thank you user.

She won't be liable for inheritance tax as her estate is below £325000. However if she needs to go into care before 7 years have elapsed, social services will probably try and claw the money back if she can't afford to totally self fund .

Whataboutbob the 7 year rule only applies to IHT. A Local Authority can look back as far as they need to and if they believe assets were disposed of, say 10 years ago, purely to avoid care fees then they can still assess you as still owning that asset.

What about where she lives now? If that is owned its value is part of the estate.

It is likely to be fine. I've given my older children quite a bit of money recently. I am extremely likely to surived 7 years (I am mid 50s) and a care home if I go into one will be in about 30 y ears' time so I hope the local authority won't be looking back to what I gave away 30 years before. Anyway I hope not to need a local authority home and to die in the house or fund my care.

LastApprentice thanks for clarifying that. I wonder, in practice, how far back in time social services would look?

Lucysky how is your situation remotely relevant? You're mid fifties, OP's mother is considerably older and going into sheltered housing. It is VERY likely the LEA would seek funding from the OP and her db if the mother ever needed care she couldn't pay for.

How far back varies by authority. If OPs DM has already moved in to sheltered accom and now gives away her assets then, yes of course they will treat this as a case of deliberate deprivation of assets and claw back funds (if she is incurring them through her care needs). In all honesty, how could it possibly be anything else?

From an IHT point of view you're probably fine, especially if your mother is a widow.
I agree with Divided that care home costs are much more likely to be an issue - depending on what future governments finally have the guts to implement.

Is it really social workers who review this or the office of the public guardian?
In my experience SW didn't have the training to look into anything more in depth than current bank statements/ savings accounts.

Won't she need it to pay rent in the sheltered housing flat?

www.hklaw.eu/services-for-you-2/deliberate-deprivation-of-assets/

A top-line article on how this works, how serious it is and the legal action that can be taken against anyone who tries to dodge care fees by gifting their assets, yet still expecting other people to foot their care bill.

I appreciate it's an emotive issue for all sorts of reasons, but there is a big crackdown on this and for good reason: there is an aging population and insufficient government funds allocated to this area for everyone's needs to be met.

Sheltered housing is not a care home. Plenty of people go into that in their 60s and are there for 20 y ars and often die there never ever needing a care home. If they do need care when they are older then often a relative takes them in so in my view it makes sense to give away money now. If later in the unlikely event a care home is needed and it is hoped the local authority will pay they can all sort that out later. It is not illegal to give your assets to children. I expect to live for 30 years more independently. Even if I were 75 as all my relatives hvae died at home it would not be illegal for us to give money away even at 75. My father gave his pension money away at 75 and he never needed state provided care and that gift was perfectly lawful.

Lucky I don't think anyone is saying giving a gift is illegal. What they're saying is if you deprive yourself of assets then need state funded care you're assessed as still owning that asset. If you then can't afford care due to having given the asset away then to put it bluntly you're screwed.

Yes, but it will depend on the amount of time. If I give assets away now or fund school fees or even feed my children or go on holidays (!!!) that means less money when I am old. I have deprived myself of assets. Same if a parent pays for a child's wedding or buys a posh car. Obviously if you give it away and next year you are in the care home cap in hand to local authority - very likely the local authority will go rooting around to see what you gave away and when. If however you just go into sheltered housing like the local flats we have for people over 55 (which incredibly is my age!) and then in 10 years you happen to need a care home place but you have no assets I think that kind of gap would make it extremely unlikely the local authority could prove you had deliberately divested yourself of assets. In fact plenty of parents downsize in old age and give the money to children. Others save nothing and just drink the money all their lives. Both are deprivation of assets I suppose....

Whilst it's unlikely to look back that far it's not impossible. It would be a matter of weighing up the reason for the gift. If your kids are really struggling financially or looking at getting a foot on the ladder then fair enough. If there is no 'legitimate' reason then the LA may look into it further. A simple question such as "have you ever owned a house" could open a can of worms.