Father gifting his house - avoiding IHT/care home fees

RafaNadal

I would like to get advice on the best way to avoid IHT and/or care home fees regarding my father’s house. Although he is in his 70’s and healthy at the moment, were are obviously aiming at minimising our:

1) IHT bill when we inherit his house in the event he passes away
2) Care home fees, should he ever need a care home in future, so we would also need to satisfy the “deprivation of assets” issue.

He wants to gift his house to my sisters and me, but continue to live in the house alone. I understand a potential way to get round the "gift with reservation" problem is for him to pay a “market rent” to us after gifting us the house. He would then have to live for 7 years before it would be out of his estate. Is this correct?

Also, I hear another way perhaps is that the property could be put into trust, but it’s not sure it would get around the gift with reservation issue under current law. Has anyone had any success with dealing with this issue or has some ideas on a way round it?

Regarding deprivation of assets for care home fees, am I right in thinking the council would have to judge: 1) his state of health when he gifts his home to us and 2) the time between gifting the property and his need for a care home?

Any advice on what would be the best course of action would be very much appreciated. Thanks for any replies.

le_loup

So your father, who is relatively wealthy wants to live in a care home providing the sort of care that is funded by the local council.
I assume your father already has dementia to be considering such a thing.

nomunnofun

RafaNadal wrote: »

He wants to gift his house to my sisters and me, but continue to live in the house alone. I understand a potential way to get round the "gift with reservation" problem is for him to pay a “market rent” to us after gifting us the house. He would then have to live for 7 years before it would be out of his estate. Is this correct?

.

The house, while it is his and he lives in it is exempt from CGT due to private residence relief. If it is gifted, it becomes your house for CGT purposes and remains his house for IHT purposes as he will continue to live in it. CGT will be payable by you when you eventually sell.

CLAPTON

presumably his wife is deceased?

if he pays a market rent, you will of course have to declare this to HMRC and pay income tax at the appropriate rate

and when you eventually sell it you will be liable to capital gains tax

jackyann

Do check whatever the latest information is. The amount of assets that are disregarded is changing.
If your father becomes dependent on the local council to pay care home fees, they will be paid at a basic care level - and in most places this is decent quality of care. What he will need to top up is if he wants a bigger room, or wants to pay for extra luxuries. Do look at what residential homes are offering, and what you would want to pay on top of basic care.
It becomes even more complicated should he wish to stay at home and receive care there.
gov.uk can give you the basic information, and the current amounts for IHT.
Do consider this carefully. Very few of us know what level of care we will need or be happy with and for how long.

xylophone

With regard to IHT
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm

"Giving your home away and continuing to live in it
You can continue to live in your home as your primary residence after giving it away, provided you pay a market rent to the new owner. Bear in mind that the new owner may have to pay Income Tax on the rent you pay them.
If you don't pay a market rent, the gift will be considered a 'gift with reservation of benefit' and the house may be subject to Inheritance Tax."

With regard to Deprivation of Assets, as I understand it, there is an intention test - ie, was the object of the gift to avoid paying care home fees.

I should suppose that anybody entering into the arrangement would seek to demonstrate to the authorities that the gift was made for IHT planning purposes, which is quite legitimate, rather than to avoid paying care home fees, which isn't?

http://theparaplanners.com/blog/2012/11/deprivation-of-assets-for-long-term-care/ might be of interest.

johncarlton76

Seek specialist advice and stay clear of asset protection trusts.My friend got one of these under similar situation as yours and its not been worth the paper it's written on.

Pay for the specialist advice. It's always better than someone's free opinion which is what you will get on here.

On something as big as this, it will be money well spent.

Credit-Crunched

Both of you should consider a few points.

As you are charging commercial rent, you will have to complete self assessments each year

You are liable for income tax if your total income exceeds your personal allowance

This home becomes an asset of yours, so in divorce, bankruptcy, benefit entitlements, it is counted, and could place you fathers at risk.

If u are to do anything, seek professional advice,and don't rely on forum advice in isolation

Savvy_Sue

Credit-Crunched wrote: »

This home becomes an asset of yours, so in divorce, bankruptcy, benefit entitlements, it is counted, and could place you fathers at risk.

And that 'you' is multiplied by the number of siblings, obviously, so even if the OP thinks their marriage, finances and health are rock solid, there are others to consider.

Also as landlords, you have a number of responsibilities, which I don't think are removed by renting to a member of your family - gas and electric safety certificates, smoke alarms etc spring to mind.