Anyone know about Inhertance Tax?

bundly

A friend asked me to post this question as she is not a member here.

Her situation is: she and her also-unmarried sister, ages 56 and 61, are live-in carers to their elderly parents. The father is very ill and not likely to live more than about a year or two. The mother could live another five to ten years or more.

The parents are joint owners of their large house. It's worth about £500,000. When the father dies the property will belong entirely to the mother. When the mother dies she property will be inherited by the sisters 50-50. There are no other siblings.

My friend is under the impression that they will have to pay Inheritance Tax on this and asked me if I could make enquiries to find out if there is any way the daughters can minimise or avoid paying it.

There is a supplementary question and that is, should one or both parents become so ill that home care is impossible and they have to go into a home, what is the status of the house property? Can the family be forced to sell to pay care home fees? Or does the council pay the fees then have a legal charge on the house, so they can get the money back from the estate?

Thanks in advance to anyone who can advice.

Bundly

Bluebirdman_of_Alcathays

No IHT - even if they both died tomorrow, they each get a nil rate band of 325k, that can be pooled when the first spouse dies, so 650k on second death.


The reality is that more generous allowances are being introduced over the next 4/5 years that will see an additional 350k allowance for residential property, so £1m in total. Impossible to say 100%, but there would have to be a very aggressive appreciation in property value for IHT to be due in the future.


I'm no expert on the care fees situation, however it is my understanding that as the children are over the age of 18, that the property will be treated as an asset, and sold accordingly, if the elderly couple have no other means to pay. The easiest way around this is for the elderly couple to gift the property to the sisters ASAP.


http://www.ageuk.org.uk/home-and-care/care-homes/the-means-test-and-your-property/

bundly

Bluebirdman_of_Alcathays wrote: »

as the children are over the age of 18, that the property will be treated as an asset, and sold accordingly, if the elderly couple have no other means to pay. The easiest way around this is for the elderly couple to give it to the sisters ASAP.
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Thank you BBM for both responses and the link. Very kind.

bundly

Bluebirdman_of_Alcathays wrote: »

No IHT - even if they both died tomorrow, they each get a nil rate band of 325k, that can be pooled when the first spouse dies, so 650k on second death.

Oh, just to clarify, when you say "they" each get a nil rate band of 325k do you mean the daughters or the parents?

Kynthia

This might be better in the cutting tax part of the forum.

Are their other assets or insurance payouts that could take the whole estate over the inheritence tax threashold? Would it be better for the parents to own the house as tenants in common and each have a will leaving their half of the house to their daughters? Is there an outstanding mortgage? All things I'd want to consider and ask an accountant who knows about inheritance and care home funding rules.

notbritishgas

bundly wrote: »

Oh, just to clarify, when you say "they" each get a nil rate band of 325k do you mean the daughters or the parents?

The parents.

xylophone

The easiest way around this is for the elderly couple to gift the property to the sisters ASAP.

Deprivation of assets.

http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true

And unlikely to be necessary - http://www.ageuk.org.uk/home-and-care/care-homes/the-means-test-and-your-property/

In some situations, your home won’t be taken into account in the means test. There are a few circumstances where this applies. If you need temporary or short term care only, your home won’t be included in the means test.

Your home also won’t be counted if it’s still occupied by:

your partner or former partner, unless they are estranged from you
your estranged or divorced partner IF they are also a lone parent
a relative who is aged 60 or over
a child of yours aged under 18
a relative who is disabled.

It would also be possible for the house to be owned as tenants-in-common and for each parent to make a will leaving his/her share to the daughters.

macca1974

As the property is less than the joint nil rate band, then no issue with IHT. Regarding care home fees etc, as has been said, would be a bit dodgy to give away now if parents are in ill health already regarding depravation of assets.

I would have thought that the most sensible thing to do here would be to amend the fathers will if he has the capacity to do so. If he changed the tenancy from jointly owned to tenants in common, then he would own half the house. Within the will, he could then place his half of the house into trust for the benefit of the two daughters, with his wife having a right to live in the house for the rest of her life. If then the mother went into care at some point, the local authority would only be able to take into account her half of the house. She would also have the right to live there for the rest of her life if she didn't need to go into a home. You wouldn't be able to protect the whole house from care fees (and clearly this doesn't work if the father needs to go into care), but you'd be able to protect a good chunk of it.

this is a very common type of planning and a half decent solicitor should be able to sort the wills out for you for a few hundred pounds.

Edit - have just seen that xylophone has said the same thing much more concisely!

G_M

Bluebirdman_of_Alcathays wrote: »

No IHT - even if they both died tomorrow, they each get a nil rate band of 325k, that can be pooled when the first spouse dies, so 650k on second death.

This assumes there are no other assets in their respective Estates. If they have savings, investments, a yacht etc that take the value of the Estate over the £650K level, IHT will be payable.

........ The easiest way around this is for the elderly couple to gift the property to the sisters ASAP.

http://www.ageuk.org.uk/home-and-care/care-homes/the-means-test-and-your-property/

This would quite possibly been seen as 'depriation of assets' by the local authority - in other words a deliberate attempt to pass on assets in order to get means tested benefits.

googler

As pointed out above, IHT is payable on the whole of the deceased's estate, not just on their property.

AdrianC

Don't count the inheritance before the parents have kicked the bucket...

The sisters are live-in carers at the moment - what happens if, after the father's demise, their own health deteriorates, or if the mother's demands become more than they can cope with?

Should professional care be required, the mother's ownership of the house will mean she will get no financial help from the local authority. She will need to pay it from her own assets. If residential care is required, then the two sisters will not be deemed to need to live there, so the house may need to be sold to pay.