Selling father's house before death and distributing proceeds

[madamy]

My elderly father is in a care home, he has an excellent pension and good savings both of which will easily cover his care home fees for the rest of his life.
He has a house which needs selling, and have been advised that selling before he dies is recommended to avoid capital gains tax. There are 6 children, all of whom will inherit an equal part of his estate.
My sibling (who has POA) is wondering whether to split the proceeds of the sale equally amongst us all (as the cash will help some of us considerably) rather than keeping it in his account and it being part of his estate when he dies. Am I right in thinking that this lump sum would be subject to inheritance tax of up to 40% when he dies?
Hope this doesn't sound callous, we love him very much but are trying to be practical.

If he dies within 7 years it still counts for IHT.

Does he have capacity to consent to this? POA can only be used in the interests of the donor. This clearly isn't in his interests as he might need that money in the future if his care needs increase. If there ever did come a time when he couldn't pay his care home fees out of his remaining income he would have to move to a cheaper home and if the council had to pay his fees that would claw it back from you all through deprivation of capital rules. And yes, you will still have to pay IHT unless he lives 7 years.

There is a sliding scale so even if he lived for 3 or 4 years less would be paid if money was gifted now rather than after his death. Make sure there will be plenty for care home fees because that's likely to cost up to £100k per annum.

Yes if he dies within 7 years it will be counted towards inheritance tax but there is taper relief. 32% tax after 3-4 years, 8% after 6-7 years.

I don’t think your sibling can legally do this. You can only use the power of attorney to give normal gifts, such as for birthdays and Christmas. You can’t use it to distribute expected inheritance early!

https://www.gov.uk/use-lasting-power-attorney/property-financial-affairs

Your sibling needs to talk to an inheritance tax specialist. The first port of call should be a solicitor who will either be able to help, or will advise that a tax accountant is consulted instead.

You can't afford to make mistakes with this.

If there’s definitely no likelihood of the money being needed it’s possible. It would be very wise for 40% of the proceeds to be held back to pay any future CGT bill. If it ends up not being needed, those funds can be distributed once that’s known.

I really hope you aren't trying to give away his money without his knowledge. If he does not have capacity then the money needs to be put in a savings account until he dies. Anything else is hella illegal.

If the POA is only temporary to deal with the house sale and he still has capacity then I would recommend getting a lawyer to have a private meeting with him to draw up letters about gifting you the money.

Agree with this - don't gift it all.

Poor bloke - his dc selling his house behind his back!
However, when he does eventually die and his estate is wound up, if he has left his house to his children there won’t be any CGT to pay, plus he will be able to offset £175K of the house against IHT. If he’s never going to return home the house could be sold and the money invested to increase his income though.

Mumsnet is not generally a great resource for things like this. First you have 36 months from the date he entered the care home to sell without losing private residence relief from capital gains tax.

If the home is sold after the father dies after capital gain is taxed on the gain between value at death and the final price. The house may not increase in value by a lot if sold quickly and each of the 6 can set their capital gains allowance against the tax. It's only 3k each but better than nothing.

If sold now a trust could be set up to either pay care home fees or pass the proceeds to the children. I know too little about trusts to comment further.

One of the children could move into the house if a proper legal agreement is drawn up for a later sale or buying the others out.

Moving into a care home does not remove the right to relief from inheritance tax if the value of the family home is based to descendants

"The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.
There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.
The existing nil-rate band will remain at £325,000 from 2018 to 2019 until the end of 2020 to 2021."

There may be 2 nil rate bands if the house was jointly owned and the wife died first.

In summary there is no immediate need to sell the property and depending on the amount of other assets inheritance tax may not be payable at 40%,

I would be surprised if a solicitor would allow this.

Totally agree with @anyolddinosaur

"He has a house which needs selling, and have been advised that selling before he dies is recommended to avoid capital gains tax."

That seems to be very bad advice indeed. CGT is irrelevant if the father still owns the house when he dies.

I don't think that you've had the best advice.

IHT taper relief is frequently misunderstood. Putting aside the legal issues, if he were making the gifts and died within 7 years those would be failed PETs (potentially exempt transfers) and so become chargeable. They use up any available nil rate band in full. It is only to the extent they are not covered by nil rate band that the tax on them is reduced by taper relief. So in many cases such gifts save nothing.

Consider the extra £175k nil rate for passing on property.

POA means you have to act in the interests of the person.

How does distributing the proceeds benefit your Dad?

Selling might. But not giving away the proceeds!

I mean, unless he has capacity to consent then it would become a financial safeguarding issue and could result in a police investigation. You can't just use POA to sell someone's house and divvy up the proceeds.

CGT is not irrelevant if he dies more than 3 years after entering the care home. However he would still be entitled to some relief from CGT for the period he owned it and his 3 CGT relief allowance.

They really need some specialist advice because giving the money away now could well be illegal.

This

Deprivation of assets?

I think your sibling needs to speak to someone to understand the responsibilities that come with being a POA, you can’t just do what you want.

The capital gains tax advice sounds incorrect, going off my own, recent, experience with my mother's estate.

If he doesn't have capacity, I don't think your sibling can distribute the proceeds of the sale to you all. It clearly isn't in his best interests to give away significant assets, even if his pension is good. Having less money available to him is obviously worse than having more money available. His POA acting against his best would be committing a criminal offence.

Assuming distribution of funds is legal, you'd all need to be on the ball about inheritance tax - if he dies within 7 years the state could potentially claw back any inheritance tax owing from the people his assets were distributed to.

I think you all need better advice.

Does your sibling fancy a stint in prison? If you have POA you cannot give away possessions and money of the person you have POA for. It is completely illegal.
When you activate the POA you have to keep meticulous records of where the money went.

To be honest I think there's something very sinister about distributing a person's estate whilst they're still alive. You can't wait for him to die to take his money so you're just going to grab it early. Diabolical.

Thanks all, this is really helpful. It makes perfect sense that distributing proceeds could be considered not in his best interests. He has advanced dementia and does not have capacity. He will not be able to return home at all. His income and savings definitely will cover care for as long as he is there, but I would hate to think that anything immoral or illegal/dodgy was to happen. I'll speak to my sibling and show them your replies. Sounds like a good solicitor would be helpful both for conveyancing and future financial advice. I think we need to revisit the responsibilities etc of being POA.