Cash from MIL - can she?

[Snowsquonk]

My MIL moved from a house to a retirement flat which she bought outright, and is leaving us to sort out the sale of her house. She is in her 80s and mentally well but physically has some problems.

When her house is sold, she wants to split the money between her two children. We know this would be included in her estate if she dies in the next 7 years (which, frankly, is likely). There would - in theory - be enough in her savings to pay the inheritance tax liability. We've calculated that if she needed residential care she can, from her savings, afford around 3 years of care and if her flat was sold that would provide another 3 years of care home fees.

Is there anything else we need to consider? Would her gifting the proceeds of the sale of the house be seen as deliberate deprivation of assets?

Potentially yes. There are limits for iht exempt gifts.

IHT and deprivation of assets are two separate things.

The IHT liability is within 7 years, as you say, but reduces each year within that timescale, plus the limit is higher if she owns her own property and leaves it to children or grandchildren (have you taken the higher limit into account - think it is due to be 500k by 2020?). How old is she, even being in 80s doesn’t mean she will die in next 7yrs in this day and age.

Deprivation of assets is probably more difficult to comment on - my understanding is that if she is in good health when she gives you the money, then it would be harder for the council to say it was deprivation, especially if she still has a minimum of 6 yrs worth of money for care if she needed it. You could argue that everyone felt that would be enough, given her age and the fact that there is nothing at this point in time to make you think she would need care sooner rather than later.

A friends mum is early 80s. I know she gave her DC significant money when she downsized a few years ago, plus has given one of them some extra recently, but is unable to give other two the same, so obviously doesn’t have heaps of ready cash. I would think she has a reasonable amount in her property though, as she in SE.

Does she receive any pension credit?

In planning for IHT and so on, my mother - only a little younger - has been advised to plan to keep available 5 years worth of potential care costs. So your mother's plan seems pretty sound from that point of view. The sooner she passes "surplus" capital on, the smaller the ultimate IHT liability will be.

Thanks all - she doesn't get any pension credit. She gets the widow's bit of my late FILs occupational pension.

Potentially yes. There are limits for iht exempt gifts.

This isn't an IHT exempt gift. OP has said if she dies within 7 years, they will be paying IHT as required.

Not sure if it would be seen as deprivation of assets or not, but the average stay in a care home is around 3 years, so with 6 years worth of fees available it’s likely that it will cover what she needs.