It's a Will one. Probate question.

[cheekychops68]

Df found out a sibling was given a large sum of money when their only dp sold their home. This was last year. They're both in the will. Sibling has POA.
The dp is very old and will be lucky to live many more years.

Surely that amount will be counted when the will is read?Are there searches to see what's been given? Df tried looking but it gets so confusing.
Sibling is the closest to the dp.
Sounds awful talking about a will when someone is alive but I feel there's going to be a shit show.
Any advice or has anyone been through this? TIA

When they die and probate is requested the executor will ask the beneficiaries to declare any money gifts given for the last 7 years. When probate is granted the executor will pay off any debts, solicitor fees, funeral fees, tax, bills, care home, any refunds due, and finalise the accounts. When the accounts are finalised the money can be distributed to the beneficiaries according to the deceased persons wishes in their will. Thats if there is any money left. What is it everyone is worried about,

This is a bit misleading. You can give any amount of lifetime cash gift and survive 7 years with no IHT consequences. Even if it’s cash of £4m, survive 7 years and there are no IHT consequences. The £325k is only relevant on death.

also whether or not there would be tax to pay if they did die within 7 years depends on the cumulative lifetime total of gifts, so if only lifetime gift is £50k no IHT on the gift. All is does is use up the tax free allowance available on death. This is up to £1m made up of the Nil Rate Band (NRB) of £325 plus the residence NRB of £175 if you leave a home to descendants giving total of £500k. This is potentially doubled on second death (transferable NRB) if a predeceased spouse had left no chargeable gifts on death (eg all spouse or charity) or lifetime gifts. So in the example of the £50k gift, if £1m NRB potentially avaibbe, this is reduced to £950k and if estate on death is less than this - no IHT. If estate was more, still no tax on lifetime gift as the gift itself in NRB, but tax at 40% of amount of death estate in excess of NRB.

You need to consider deprivation of assets issue also, if the person may need care.

This is also a worry. Council have put in writing they won't chase it.

Ìf that's the case why worry. Where is the parent now, do they still have enough money to pay for themselves or a carehome if they need it. How was their health when they gifted the money, was anyone aware they may need a care home or carers in the future and deliberately gave away money to avoid paying. What changed for them to invoke financial poa and is there a health poa in place

They wanted siblings to have poa in case they got dementia. They have it mild now and it varies. Sometimes very lucid.

Which poa do they have

Financial

It is perfect legal to give money to your relatives.

It sounds as if IHT will not be an issue.

Your Dad’s pension and Attendance Allowance all go towards the care home fees and the rest is presumably coming from his house sale proceeds?

£23k (I think) can be retained by the individual, and not swallowed up by the home fees. So if his ££ to pay did run out, that £23k could presumably be used, and if they did come for the rest under deprivation of assets presumably only for the difference between £60k and £23k - but I am not sure about that or how it would work.

And you say the LA have confirmed that they won’t come after the £60k, so nothing to worry about.

How did they come to confirm that? Was it part of a financial assessment?

It would be good to get Health and Welfare POA as well.

@MilletOver the LA confirmed over the phone when it was queried and then sent an email. No financial assessment.

Where are they living now. A financial assessment is only needed if they need to move into care or have carers in to see what they might need to contribute, is there plenty of money left

They'll be going into care home.

There won't be tax to pay on the £60,000 if no other gifts have been made, but it might use up the Nil rate band available for use on the death estate.
But the nil rate band can be up to £1m if certain conditions are satisfied so depending on the size of DP's estate there might be nothing to worry about

Unless of course the IHT regs change following the October budget!!

Sorry to derail for pedantry but if IHT is due on death on a lifetime gift the recipient is liable to pay the tax.

You can see why they're so confused.

Extremely surprised the council have confirmed that. But I guess it would take a reasonable period to burn through current pot and reach the 23k minimum.

@Words I know. If I hadn't seen it in writing I wouldn't have believed it. Maybe depends on the council?

No.

The gift is added back to the estate for calculating IHT. But provided there are enough assets in the estate to pay the IHT (eg from house sale proceeds) then it comes from the estate and no one pursues the recipient.

Who is paying for and arranging the carehome

I’m a tax adviser - the recipients are definitely liable to pay tax on failed PETs.

If the gift was given before there was any indication the giver might need care in the future then there are no consequences. This explains it well https://www.careline.co.uk/deprivation-of-assets/

Example 3.
Mr C gives his son a gift of £3,000 to put towards a house deposit. The money comes from Mr C’s savings. Mr C is fit and healthy when he gives his son the money but a month later, he is diagnosed with a terminal illness and needs to move into a care home.
This would not be considered deliberate deprivation of assets, as Mr C had no reason to expect he would need social care when he gave the gift.

Example 4.
Mr C gives his son a gift of £3,000 to put towards a house deposit. The money comes from Mr C’s savings. Mr C gives his son the gift a month after he is diagnosed with a terminal illness and shortly before he is due to move into a care home.

This could be considered deliberate deprivation of assets, as the local authority could view the gift as an attempt to reduce the amount he would have to pay in care home fees.

The Myth of the 7 Year Rule

If you’re familiar with the rules on Inheritance Tax, you might be familiar with the ‘7 year rule’. Essentially, if you give someone a gift like a property or a large sum of money, the recipient will have to pay inheritance tax if you die within seven years of gifting it. For this reason, many people believe that deprivation of assets will not apply to any capital they gave away more than seven years ago. However, no such rule exists.

In fact, the local authority can look as far back as they like when deciding whether you have deliberately deprived yourself of assets. Whether you gave away an asset last week or ten years ago, it could still be subject to Deprivation of Assets rules. It all depends on your health at the time of the gift and your intentions in giving the asset away.

If my estate is £1.325m and I give away £525k to X, and die the next day before any taper relief and assuming no residence because I’m living in rented…

Then my estate has £800k in the bank and IHT of 40% is due on the value of £1m (because £325k is my nil rate band). So £400k is due.

As there is £800k in the bank, my understanding is that the £400k comes from that and the remaining £400k goes to my heir Y. The recipient of the PET doesn’t pay anything because the nil rate band covers some of their gift and the iht that would have been due on the rest is fully covered by the bank monies.

At which step in my example am I wrong, please?

They're self funding. Siblings and person have sorted this.

In a sense, you are right in that you need to consider gifts and the death estate holistically for the NRB but for tax payable you need to consider all PETs/CLTs made in the 7 years before death separately (oldest to most recent) instead of lumping everything together.

So in your example, if no gifts in the preceding 7 years then the gift of £525k benefits from the full NRB, so taxable gift of £200k. Tax due thereon is £80k and the recipient is liable to pay that. We usually advise cover is taken out by recipients of large gifts (especially if from older donors!!).

Then the death estate is £800k, no NRB available so tax due thereon is £320k and that’s paid by the executors from the estate. The balance of £480k is distributed to beneficiaries under the terms of the Will.

I’ve ignored annual exempt amounts of £3k for ease but they would usually be available too to set against lifetime gifts.