Equity release, inheritance tax and deprivation of assets

[Frankiethree]

I am in a difficult situation financially due to divorce etc, and my very supportive DPs have said that they want to gift me a substantial amount of money via equity release that I can use as a house deposit. This was not my idea, and I initially said no, but they are insistent that they really want to do this and see me enjoy the money while they are living. They understand the implications of the equity release.

My questions are, that as they are in their late 70’s, could I then be liable for inheritance tax if they die within 7 years of this? And if either of them need to go into a care home in the future, could the local authority pursue me for the money, stating that it is a deprivation of assets.

Also, can they just gift the money to me? I know I can have a gifted deposit when purchasing a house, but is it just a matter of gifting the money to me, or is it better to treat it as a loan?

They have said that they will give an equal amount to my DS to make it fair.

Yes you will be charged inheritance tax if they die within a certain time but it will be a sliding scale. But best to ask a tax expert about it- don't rely on the internet.

Isn't it the estate that pays the Inheritance Tax?

I guess the balance IT would be paid from the remainder of the estate rather than individually.

I guess my main concern is whether they are allowed to gift me this money, and whether the Local Authority could have a potential claim on it in the future, arguing deprivation of assets.

If the parents are fit and well (as can be expected given their ages), and not obviously imminently in need of care homes, then they are legitimately allowed to dispose of their money any way they want. It is only a problem if they deliberately try to avoid the money being used for care. So if they are currently well, that does not apply. (look at Age Uk website).

And this thread has some interesting discussion of deprivation of assets, OK

www.mumsnet.com/Talk/relationships/3806846-Sibling-elderly-mother-and-money?pg=1&order=

Thanks for recommending that thread to me. It looks like the LA could use deprivation of assets to potentially get the money back from me in the future, which would then make me and my DC homeless! Very worrying, I think I need to get some further advice.

I wonder how it works then that most first buyers are now in their 30’s or even 40’s, and many are using bank of Mum and Dad for their large deposits. Maybe it would be better to say that it is a loan rather than a gift?

Yes you will be charged inheritance tax if they die within a certain time but it will be a sliding scale. But best to ask a tax expert about it- don't rely on the internet

Yes because that for a start is incorrect!

If you are getting a mortgage, a large loan may have implications when they assess affordability.

This whole scenario seems complicated. Have your parents really considered all of the pitfalls of equity release? There is a thread on moneysavingexpert in one of the forums (housing one) about this. There will also be articles on MSE about it too.