Paying someone else's mortgage from savings

gran_in_space

Hope I have put this in relevant section as I wasn't sure. If we paid off a close relatives mortgage ...under £15,000... so they can give up work to care for us on a when needed basis, would there be any tax implications for my other half who is a tax payer though doesn't receive tax form to complete? We would gift them the money to pay off and would not have anything to do with being part ownership etc. We are elderly and not working.

We have savings (nowhere near the inheritance tax threshold), we rent our home so our assets will not include property so would tax from our estate be deducted after our death? We know about the gifted money 7 year rule but only thinking of OUR having to pay tax at the moment. Also would we have to inform Tax office on the sum gifted? Thanks in advance for any help.

Malthusian

Gifts are free of tax. The only potential tax liability is Inheritance Tax if you didn't live for seven years after making the gift, but if you're "nowhere near the inheritance tax threshold" (at least £15,000 off) then there is nothing to worry about. You could keep a record of the gift so that when you die your executor can fill in the HMRC forms correctly but there is no need to declare it to anybody now.

Presumably you are happy to give them £15,000 even if the relative turns around in a couple of years and says they can't / won't care for you anymore?

TCA

I'm no tax expert but as far as I'm aware there are no tax implications in what you're proposing, other than the 7 year rule which you're aware of, and no need to contact the tax office.

My understanding is that any gift of more than £3,000 in any one of the 7 tax years preceding death would be added back onto the value of the deceased's estate. If you're likely to be nowhere near the inheritance tax threshold, then it's probably not an issue.

Malthusian beat me to it but we're in agreement.

Keep_pedalling

TCA wrote: »

I'm no tax expert but as far as I'm aware there are no tax implications in what you're proposing, other than the 7 year rule which you're aware of, and no need to contact the tax office.

My understanding is that any gift of more than £3,000 in any one of the 7 tax years preceding death would be added back onto the value of the deceased's estate. If you're likely to be nowhere near the inheritance tax threshold, then it's probably not an issue.

Malthusian beat me to it but we're in agreement.

If the OP has not made any gifts (excluding normal birthday and Christmas gifts) in the previous tax year, then they can also carry over that allowance, in which case only £3000 of the £15,000 would not drop out of their estates at the date of the gift.

xylophone

If either you or your spouse should need means tested residential care because the relative cannot cope, you could find that the gift would be regarded as deprivation of capital.

If it is not a gift but payment for services rendered, then DoC would not apply but the relative might have an income tax consideration.

This is only a "what if" but possibly worth considering.

enthusiasticsaver

There are no tax implications for you but you might be considered as depriving yourself of capital if you need to apply for means tested benefits in the future as xylophone has said.

Also what happens should your relative fall ill themselves or not be able to cope with caring for you? At that point the deprivation of capital comes in again should you need to apply for financial help. Why not give your relative a monthly amount rather than a lump sum?

gran_in_space

Thank you so much guys for answering, all valid points thank you. Since your mentioning the deprivation of capital which I hadn't paid much attention to, I am now thinking that maybe offering the money to the relative as a loan. I had thought about monthly payment but it seemed for them easier to receive as a lump sum for various reasons so that's why we said lump payment.

In effect for us it would be giving them the inheritance they would receive after our demise...and rather than wait, they could use it now. Have to broach them on the subject of a loan then, so that it aids us re any future benefits which (hope we won't) we have to apply for. Would make sure they get any repayments back of course if you know what I mean. Thanks for your help.

bowlhead99

gran_in_space wrote: »

Since your mentioning the deprivation of capital which I hadn't paid much attention to, I am now thinking that maybe offering the money to the relative as a loan.

That wouldn't really help in terms of someone assessing you under a means test:

Scenario 1 - you give the money away to family:

"Hey, I only have £5k of cash and financial assets, please can I have some means tested benefits or care provision"

"Well if we look at your recent activities we can see you would have had £20k if you hadn't just given £15k away to family to deliberately deprive yourself of assets when you started to need care. So we will add those assets back and assess you as having £20k even though there is only £5k in the bank. You don't need benefits and can pay for your own care".

Scenario 2 - you loan the cash to family:

"Hey, I only have £5k of cash and financial assets, please can I have some means tested benefits or care provision"

"Are you sure you only have £5k? What about the £15k you transferred out of your bank account a couple of years ago?"

"Ah yes, that's money I lent to my daughter"

"Oh, so you have £5k in the bank and your daughter owes you £15k? Sounds like you have £20k of cash and financial assets to me. You don't need benefits and can pay for your own care."

As you can see, turning it into a loan arrangement rather than an outright gift, shouldn't get you into a better position in terms of being able to qualify for means tested benefits, because the loan that someone owes you is a valuable asset. Otherwise everyone would be temporarily lending money to their family or trusted friend and saying they had no assets so they wanted full benefits. So from a point of view of getting benefits and local authority-funded care provision, loan or gift is probably about the same.

Of course, from a point of view of having access to funds to pay for stuff yourself (whether for a nicer care home or for a holiday or whatever), then a loan is better/safer for you personally than an outright gift because you can call it in and access the cash for those things you might want. It is obviously not as good for the recipient because although they have cleared their bank mortgage, they still owe you money and there is a risk you might call it in, so they don't know they can really afford to give up work.

Deprivation of capital is something that is mentioned often on these boards. AgeUK have a factsheet which gives an overview of the concepts. But basically it only comes into play if the person doing the means test (e.g. for local authority care, or pension credit) feels that your intention to avoid care and accommodation costs or being able to get other benefits is a significant factor in why you gave away the money ; it is up to them to prove it, if they want to add back your given-away £15k into their assessment of how much capital you have when considering giving you a benefit.

If a local authority says they believe you deliberately gave cash away to get funded benefits like care or accommodation costs, that would be something that could be easily refuted by some people because they would just say they were fit and healthy and could not have forseen they would need financial help, when they gave the money away. Of course, that's a much harder defence to argue if you are talking about your child giving up work to care for you, because you know that you already need care and can assume it is only going to get worse.

To be honest, if this is all good-intentioned and above board and not a way of getting access to better means-tested benefits, then that's fine. Nobody would have a moral problem with you making sure your care needs for the next x years are covered by helping a child out with a mortgage so they have less on their plate and are able to spend more time looking after you. Just send them the money as a gift and don't call it a loan. There may be an argument that if you are literally paying them cash so that they can care for you, then they are earning money as a carer and should consider whether that's something they should pay income tax on. But that's their problem rather than yours.

In effect for us it would be giving them the inheritance they would receive after our demise...and rather than wait, they could use it now.

Giving them money early out of your capital is completely fine if you can afford it and your giving them the money doesn't put you in a situation where you have to ask the government for extra benefits or care and accommodation costs because you have run out of money.

Have to broach them on the subject of a loan then, so that it aids us re any future benefits which (hope we won't) we have to apply for. Would make sure they get any repayments back of course if you know what I mean.

The kind of arrangement where you give them £15k and they give you back £200pm and then you take that £200 each month and give it back to them cash in hand under the table, is the sort of needlessly complicated arrangement that implies something 'underhand and dodgy' is going on.

I would say forget all that, if you want them to have your money, just send them a pile of money to their bank account, or pay their mortgage bill every month for as long as you can afford it. Either way, if those actions have reduced your capital (rather than being easily affordable out of your ongoing pension income), and you then start to want to claim means-tested benefits, you may find them being added back into the assessment. But as you mentioned, you hope you never need future benefits anyway, so it may never come up - especially if it is a long time between the gift giving and the needing care so the two don't seem very related at all.

gran_in_space

'bowlhead99'. Many thanks for a very comprehensive and thought provoking answer. We will be discussing it all and see what we come up with. We don't have any intention of course to deprive ourselves of capital to gain from the state in benefits as hopefully we won't need them (tho' I never say never..). However I can see having read up on it, that should we need help in the future, that it will be first assessed as deprivation of assets. I have likened it to us buying a new car for the amount we want to give but I see even that can be misconstrued as to intentionally trying to gain benefits especially at the timing of spending the cash. Gawd, no leeway in this life eh! Anyway, thank you again for going into detail, lots to consider now when I'd only had a few things to think about lol.

atush

Have you been to CAB/age concern to see if you are claiming all you need to?

Do you qualify for attendance allowance?

C_Mababejive

Im no expert but keeping it simple and as a general rule, you should not put any money into a property without some kind of registered interest in it be that via a listing as a proprietor at HM Land reg or via some kind of deed of trust/agreement.

If you dont do that, well you may as well open the window and let the recent brisk winds carry it away.

Anyway does at £15k mortgage really need paying off? Its a trifling amount.