Deliberate deprivation again!!!

harryis

Father-in-law may need to go into a care home, he transferred his property into the name of his two daughters nearly 18 years ago. CRAG regulations state the timing of disposal should be taken into account when considering the purpose of the disposal. 18 years ago he was fit and healthy and could not have forseen the need to move to residential care. I appreciate the local authority will ask about his, but is 18 years sufficent to protect the property from their means test? Anyone have previous experience in similar circumstances?

Mojisola

Has he been paying rent to the new owners of the property - his daughters? If not, he didn't really "give" it to them; he has kept the use of it for free. It is considered to be a 'gift with reservation of benefit' as far as Inheritance Tax is concerned and may well be for care needs too.

seabright

If he kept living there, didn't pay rent, then the local authority and (when the time comes) the inheritance tax assessors may determine that this was a "gift with reservation" and therefore can be discounted.

Sorry, but this type of transfer is never an effective tax planning measure.

harryis

I appreciate the comments about the rules around inheritance tax, however his total assets will not reach the threshold. So what happens with the local authority financial assessment and his property? Will it be discarded from the assessment as it was transferred such a long time ago and at a time he was very fit & well and could not forsee the need for a care home.

pinkshoes

How much is the property worth?

He can give £3000 "gift" each year to each daughter, so if he gave them the house 18 years ago, then 18 x £3000 x 2 = £108k!

building_with_lego

Is it £3,000 per child? I understood it as £3,000 per year between children/ grandchildren. Could be wrong though

Mojisola

harryis wrote: »

I appreciate the comments about the rules around inheritance tax, however his total assets will not reach the threshold. So what happens with the local authority financial assessment and his property? Will it be discarded from the assessment as it was transferred such a long time ago and at a time he was very fit & well and could not forsee the need for a care home.

Looking at some of the cases that went to court, I think it will be disregarded. See pages 4 & 5 -
https://www.ageconcernliverpool.org.uk/uploads/documents/Fact%20Sheets%202010/100310/FS40Deprivation_of_assets_in_the_means_test_for_care_home_provision%5B1%5D.pdf

Take him round some of the homes in his area and see the difference between the ones that charge what the local authority will pay and the ones that charge more. He may start to think that the transfer wasn't such a good idea.

I'm not sure whether the two daughters will be charged Capital Gains Tax when they come to sell his home - I'm sure someone else will know. House prices have gone up quite a lot in the last 18 years.

RAS

Mojisola wrote: »

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I'm not sure whether the two daughters will be charged Capital Gains Tax when they come to sell his home - I'm sure someone else will know. House prices have gone up quite a lot in the last 18 years.

Definately if there is more profit that allowed by their CGT allowance.

One of reasons this is not always a good idea.

Blitz01

harryis wrote: »

Father-in-law may need to go into a care home, he transferred his property into the name of his two daughters nearly 18 years ago. CRAG regulations state the timing of disposal should be taken into account when considering the purpose of the disposal. 18 years ago he was fit and healthy and could not have forseen the need to move to residential care. I appreciate the local authority will ask about his, but is 18 years sufficent to protect the property from their means test? Anyone have previous experience in similar circumstances?

Nice to see the daughters care more about money than their father.

zzzLazyDaisy

When my mil went into a home we visited lots of homes and the only place we were happy to put her was a fee paying home. She had lived all her life in a council house and had few savings, but even so, the free places were dire. We ended up making up the short fall in fees from our own pocket. Later we did the same for my mum.

Because of my health it is very likely that I could end up in a care home and I shall be selling my house to fund my care. There is no way I'd go into a second rate care home in order to leave money after I'm gone. I just don't understand this mindset.

donquine

If FIL has 'given' his house away to his two DDs but continued to live there and not pay a market rent, for IHT purposes, he hasn't really 'given' it away.

You can give away gifts worth up to £3,000 per year to anyone (£3,000 being the aggregate) without tax coming into play, but that does not apply here. FIL has tried to give a house in a oner, not shares in a house worth no more than £3,000 each year and in any case, it's not been a gift. HMRC will not entertain that argument at all.

For CGT purposes, the DDs do own the house and won't qualify for lettings relief (assuming the FIL hasn't paid rent) or own occupation (assuming they've not lived at home for a very long time). I would need to see some figures, but on the face of it, it sounds like they may have a CGT bill to pay and it may be for a lot of money.

I can't comment on the care situation, but I think the family should seek professional advice now, to establish what their tax position is and determine if anything can be done to 'rescue' things.