Implications of Grandparents being bought out

Johnhowell

All,

Not sure if this is the correct forum, but would like some guidance.

Situation: Grandparents (in 70s and 80s) live together in grandmothers property. They did equity release a few years ago and are afraid that the accruing interest will eat up the whole of the property value when they die.
Grandfathers' son-in-law has offered to buy the property, with the grandparents staying in the property. They can then pay off the equity release mortgage, keep a bit for themselves and give lumpsum to grand children (in 20s).

Question: I am aware of the IHT rules for 7 years survival after gifting. However, what would the situation be if they had to go into a care home? Both or singularly? Would the local health authority take a dim view of them purposefully releasing an asset? Is there a certain time period?

Any guidance would be gratefully received.

John

localhero

Hi Johnhowell,

No there are no time limits.

The local authority would be interested in the motive for making a gift. There are sometimes good reasons - ie to minimise inheritance tax.

If a generous gift is made shortly before they required care, then it would obviously be harder to demonstrate that they hadn't deliberately deprived themselves of capital.

If the LA argue successfully that the transaction was to deprive themselves then they simply won't fund the care.

seven-day-weekend

First of all, please be aware that if they sell to the son-in-law, that unless they pay a market rent for the property and the Son-in-law declares it for tax purposes, it won't escape being counted for Inheritance Tax, no matter how long has passed.

As regards the care home fees, it is a grey area and each case is looked at on its own merits. AFAIK there is no time limit.

If the Grandparents are fit and healthy at the moment and then have to go into care in five years' time it could be argued that they have not rid themselves of the asset simply to escape care home fees, but some Authorities might decide differently.

If one of them remains in the property it will not be assessed for care home fees anyway.

I'm not an expert by any means, but hope this helps.

Oldernotwiser

Johnhowell wrote: »

They can then pay off the equity release mortgage, keep a bit for themselves and give lumpsum to grand children (in 20s).

It's the lump sum to the grandchildren that would be a problem if they wanted funding for a care home in the future. If they pay off the mortgage with the money they receive then surely the money is going from SIL to lender (indirectly)?

Johnhowell

Thanks for your replies.

Lots to consider.

John

Johnhowell

Seven,

Would the situation be different if the SIL only bought enough to pay off the equity release mortgage redemption figure. So he would only own a percentage of the property - "tenant in common" with grandmother.

seven-day-weekend

Different for what? IHT or Care Home Fees?

Johnhowell

seven-day-weekend wrote: »

Different for what? IHT or Care Home Fees?

I suspect IHT would not be much of an issue as grandmother would still own the majority of the asset.

Would it be different with respect to care home costs?

John

seven-day-weekend

Well if the property was owned as tenants-in-common, obviously the Grandparent would only own a share of it, so it could not be assessed for Care Home Fees (because you can't sell part of a house). They could however, I believe, put a charge on the property.

I think this is correct, but I am not an expert by any means, just an interested forum member.

Really if you are considering doing any of this it is best to take professional legal advice.

Johnhowell

Seven,

Thanks again.

John