What should mum do with money when she down-sizes?

[RooftopView]

My Mum has decided to downsize to a flat in a scheme with a visiting warden. It's definitely the right thing for her so I'm happy about that.

However she's a bit clueless about money (and I'm certainly not up on money-matters when it comes to savings/taxes etc) so wondered if anyone could offer some advice please.

Roughly speaking if she sells her house (which she owns outright) and buys a flat she will be left with £100,000. Her income (pensions) will generally be enough to live on unless she needs to make larger purchases.

Family-wise, my dad died some years ago and there's only me and my sister with our families so I guess, eventually, my mum will leave any money to us in her will. I only mention this because someone said she may be better giving us some/most of the money now to avoid inheritance tax - is this true?

I've advised her to maybe see an independent financial adviser but I'm not entirely sure she would understand any advice they give as she can be quite forgetful or not understand things like that.

What is the best thing for her to do with the £100k?

(avoiding any form of complicated investments, risks or stocks and shares)

Same situation with my nan. She has had about £250,000 in savings for about 7 years now after she downsized. It's got quite a bit of interest on it now although not sure what the amount has risen too. It will be split among her 3 children when she goes along with her current house. If she puts it in to savings you will gain a lot of interest and create a bigger amount, she also would be able to dip in to it if she needed too or wanted to go on holiday or something. Not sure about inheritance tax, but I certainly think if she gave you and your sister a portion of it now and then the rest when she went, it would cut down tax or mean you didn't have to pay any.

Also if she gave you some now I think it would be seen as a gift rather than inheritance, so would have to search if the tax of a gift if any different to inheritance tax.

Thank you Saph.

Actually I'd forgotten that she has existing savings too.

Another thought was if mum has a substantial amount of savings eg. the £100k plus whatever else she has, does this affect any benefits or entitlements she may have as a pensioner?

Also what happens if she needs some sort of care further down the line (eg. nursing home)?

OP it depends on the value of your mum's flat. If you look at the new Inheritance Tax thresholds on the HMRC website you'll be able to work out whether under the new rules your mum is likely to be liable to pay any tax at all, even with the £100k retained, and bearing in mind any potential increase in value of the flat. If most of the £100,000k would be liable to tax then your mum might decide to pass it, or the portion of it that would be taxable, to you and your sister now. The HMRC website will explain how this works and how the liability to tax on the gift will decline over the next few years until it's tax free. If the money as well as the flat are already within the exempt amount, and you and your sister aren't in need of money now, your mum might as well hang onto it for security.

No investment advice for your mum - I'd keep it in a risk free bank account despite the low interest rates. Having a sum like that readily available for any reason I chose would be worth more to me as I got older than the possibility of making a few extra pounds.

Cross post OP. You'll need to add in the extra savings to make the calculation for tax!

She also might need to think about care costs later on. I'd keep it fairly liquid, i.e do NOT buy an annuity (although it seems unlikely she would think she needs to) but savings bonds, ISAs, pendioners bonds if they are dtill availablr should all be safe in the dhort to medium term and easily realiable if she decides to go round the world on a cruise, or buy a £5,000 American fridge freezer. IHT threshold is £325,000 AFAICR.

God. Apols for typos.

What will be her ongoing costs with the supported warden housing, what does she need to live on & does she have enough?

If she's going into supported housing then sounds like she's not going to want to blow it all on a round the world trip or anything else frivolous.

If it were my mom I think I would ask her roughly what does she want to do. Keep it safe in bank, invest, pass it to relatives or charities now, etc. And try to draw up a plan with her how to do that. Else if she's really no idea, I would raise the idea of A rule of thirds , like 1/3 to heirs (could be charity, her choice who inherits), 1/3 invested, 1/3 kept in cash "in case" she decides she needs it.

Am pretty sure the large savings would be expected to be contributed to her care when she needs care, so not a big advantage to hold onto it unless she wants to contribute a lot to her care.

No Tartyflette IHT is changing in stages over the next couple of years according to the value of your primary home.

lljkk I guess hanging onto it gives her a choice over her care as opposed to taking pretty much all choice away, if that matters to her. So it has that advantage.

Thanks for replies.

The ongoing costs would be the service charges for the flat (which covers the warden, buildings insurance, building and garden maintenance etc) and on top of that the utility bills, food etc - she has worked out this will be covered by her current income (pensions).

She's not likely to need large amounts for anything like a cruise or American fridge freezer - she is generally quite frugal.

Flat is around £100k so total is under £325k (unless she's got some serious savings she's not told me about!!)

whatever the long term plan, once she has the money make sure it is split into accounts with two different banking licenses. Not two different banks, some share licenses. The protection against banks going bust has dropped to 75k per person per license.

there is now a grace period for big sums arising from house sales but don't rely on it.

In her position I would make sure I had enough savings to cover any future care needs, medical costs, or other expenses (let's say around £50k)

If there was money left over I would divide it between my children and give it to them as a gift.

Gifts are exempt from inheritance tax as long as the person giving the money survives for more than 7 years (I think it's 7?) after doing so.

Inheritance tax is a non-issue if the value of the estate is less than £325K. Also bear that if your parents were married, some of his estate might be rolled into the allowance. Check www.gov.uk/inheritance-tax/leaving-assets-spouse-civil-partner

And the allowance is going up if assets include a family home, with provision for down-sizing www.telegraph.co.uk/finance/personalfinance/how-budget-affect-me/11722864/Budget-2015-How-inheritance-tax-changes-might-affect-you.html

So, really, don't worry about IHT.

Absolutely agree with specialsubject "whatever the long term plan, once she has the money make sure it is split into accounts with two different banking licenses."

I don't want to be the harbinger of doom but my MIL moved from a 3 bed detached when DFIL passed away into a sheltered bungalow with a warden. She lived there for 18 months before her health took a sudden and dramatic turn for the worse (she is in her 80s). She is now in a care home which costs nearly £1000 per week (SE). She had about £300,000 left over from the sale of both properties and savings. So the long and short of it is - your DM may need that money in the future and although, I am sure she may want to be generous (MIL certainly has), she may also need that money... MIL actually wanted to move into a care home - she had experienced many stressful years of managing FIL's care from home (10 year's older and infirm). She had a helper herself but with the onset of dementia, this was no longer viable.

Bank account advice is sound; make sure she uses her ISA allowance and get the bigger picture from her. You can look at the National Papers for the best accounts or Money Saving Expert. Have a proper conversation with her about her wishes and what might come next... I'd also recommend getting Financial Power of Attorney for her (activate it when she becomes unable to manage her finances); in which case you should also try and make sure all the accounts can be managed online - the palaver DH had with his DM's accounts (in branch only - in the Midlands etc.) and all her new utility bills are direct debits and on good tariffs (The Guardian have been running a campaign about how older people are being ripped off for their house insurance by renewing automatically rather than shopping around).

Babelange post should be one everyone should take note of on the subject of residential care. Even a very large lump sum can go down alarmingly quickly if residential care is needed for a good period of time.

There's a certain amount (think 7k) that you can give per year to your offspring without having to worry about tax.

But as others have said if her health deteriorates in the future she may need this money for nursing care. If I was her Id find the best rate instant access or short notice access ISA I could find and stick it in there.

...where it will earn less than inflation, and she can only put £15k a year in an ISA anyway.

as of April the first £1000 of interest on savings is tax free for everyone. At that point cash ISAs become irrelevant for the elderly who aren't worried about building up a long-term tax shelter. Rates are a bit better on taxable accounts although not much.

It might earn less than inflation but what's the alternative? I wouldn't recommend shares for a pensioner.

A friend's mother paid off the DS mortgage when they downsized. It meant the family could save many hundreds each month and also if mother was short they would help out. It meant that when she went into a home the only amount that went to the home was the retirement property (which I gather was a buXXer to sell) and then the rest of the capital wasn't in the mother's estate so it came out of LA coffers. Maybe not the best spirit of the law and not what was intended at the point of the gift but an example of giving before death yielding a real benefit for all (except perhaps the taxpayer...). It was of course simplified as the DS was an only son but it could be applied to sibling groups I suppose. Make that what you will and don't shoot the messenger of you disagree!

yes, the fact that savers are dirt to the last few governments is a big problem. (so surprise - lots of new landlords, although I don't recommend that for the OP).

you are screwed if you have savings. There is every incentive to piss it up against the wall on tat and tech.

the only way to get rates above inflation is to set up a network of the paying current accounts. £20k in Santander, £5k in Lloyds, £2k in TSB, £5k in bank of Scotland, £2.5k in Nationwide, £3k in Clydesdale, £3k in Yorkshire. That houses less than half of the OP's money.

"There is every incentive to piss it up against the wall on tat and tech."

Only if you want to accelerate the loss in value.

Indeed. But there are so many messages that growth is good, spend spend spend...

resist. Don't be a sheep!

There is little interest to be gained on any savings or other safe investments.

She might be better off buying another property and benefitting from the rental income. If she can be bothered with the aggravation.
No idea what the tax implications are though.