Deprivation of assets

zagfles

TrickyDicky101 wrote: »

I believe in the instance raised by pensionpawn it is the case that the trust is created on death - there is no deprivation (as the individual is dead and thus can no longer benefit from a care home or assistance). It is merely a tax-efficient structure to pass on the wealth. It does not deprive the still-living spouse as it wasn't theirs in the first place.

If it specifically allows the still-living spouse to remain in the house, then why couldn't it be viewed as deprivation? The surviving spouse gets the benefit of the deceased spouse's half of the house, rent free, for the rest of their life. So they have been left a benefit from the deceased's share of the house.

Also what if the survivor wanted to move house?

How would CGT work? AIUI trusts usually have to pay CGT, and only get one allowance. Had the house stayed owned by the surviving spouse, no CGT would be payable because of PPR. Also had the house been owned directly by the children, they'd each be able to use their own CGT allowance. So couldn't it be worse from a CGT point of view?

pensionpawn

zagfles wrote: »

If it specifically allows the still-living spouse to remain in the house, then why couldn't it be viewed as deprivation? The surviving spouse gets the benefit of the deceased spouse's half of the house, rent free, for the rest of their life. So they have been left a benefit from the deceased's share of the house.

Also what if the survivor wanted to move house?

How would CGT work? AIUI trusts usually have to pay CGT, and only get one allowance. Had the house stayed owned by the surviving spouse, no CGT would be payable because of PPR. Also had the house been owned directly by the children, they'd each be able to use their own CGT allowance. So couldn't it be worse from a CGT point of view?

Are you saying that if the surviving spouse needed to move into a care home that the assets of their deceased spouse, who explicitly stated in their Will is to pass to their children, should now become available to fund said care? Half of the house belongs to the surviving spouse so why should they be forced to sell / vacate the house when care home fees are only gathered from the estate of the 'cared for' person after they are deceased?

If the surviving spouse wishes to move house then any new property is acquired in the same ratio with the children as in the previous situation and if downsizing any equity split between the surviving spouse and their children.

I believe there is no CGT issues to worry about.

System

pensionpawn wrote: »

I believe there is no CGT issues to worry about.

That is my understanding. A trust beneficiary having a right to live in a property owned by the trust can claim principal private residence CGT relief.

zagfles

Clifford_Pope wrote: »

That is my understanding. A trust beneficiary having a right to live in a property owned by the trust can claim principal private residence CGT relief.

Well I have to admit I don't understand trusts, but this doesn't sound right at all - the whole point of the trust is that the surviving spouse doesn't own the trust's half of the house, so how can they claim PPR CGT relief on capital that they don't own?

Not saying you're wrong, just that it sounds wrong!

Hutch100uk

Saw a solicitor this morning but, of course, as I am living in England and my parents and sibling are in Scotland, he advised using a Scottish Solicitor.

I will ask my sibling to do this. At least then hopefully he can put a case to our parents that this wouldn't work.

It would be interesting to hear more about the Trust option. I guess even if this is shown as deprivation of assets, the asset is still there and can be used.

le_loup

Hutch100uk wrote: »

I guess even if this is shown as deprivation of assets, the asset is still there and can be used.

As would the house left in it's current ownership!

TrickyDicky101

zagfles wrote: »

If it specifically allows the still-living spouse to remain in the house, then why couldn't it be viewed as deprivation? The surviving spouse gets the benefit of the deceased spouse's half of the house, rent free, for the rest of their life. So they have been left a benefit from the deceased's share of the house.

Also what if the survivor wanted to move house?

How would CGT work? AIUI trusts usually have to pay CGT, and only get one allowance. Had the house stayed owned by the surviving spouse, no CGT would be payable because of PPR. Also had the house been owned directly by the children, they'd each be able to use their own CGT allowance. So couldn't it be worse from a CGT point of view?

Apologies, only just seen this reply.

You are conflating a Gift With Reservation (for Inheritance Tax purposes) with a Deprivation of Assets test/rule. They don't go together. It doesn't matter that the surviving spouse continues to enjoy the benefit (as they did when other spouse was alive) as there is no GWR (spouse has died - and it is dead spouse's estate that GWR would apply to). Deprivation would only apply if the surviving spouse gifted their half of the house eg to the trust/children.

CGT could be an issue - but it is one for the future and only if the asset has increased in value from whatever value it had on death.

System

zagfles wrote: »

Well I have to admit I don't understand trusts, but this doesn't sound right at all - the whole point of the trust is that the surviving spouse doesn't own the trust's half of the house, so how can they claim PPR CGT relief on capital that they don't own?

The trust claims the relief from CGT, with the result that the beneficiary is not liable. CGT is normally assessed on beneficial ownership not legal ownership, but PPR relief is available in this case. If the beneficial owner did not live in the property then the relief would not apply. But living in the property has to be specifically permitted under the trust deed.

zagfles

TrickyDicky101 wrote: »

Apologies, only just seen this reply.

You are conflating a Gift With Reservation (for Inheritance Tax purposes) with a Deprivation of Assets test/rule. They don't go together. It doesn't matter that the surviving spouse continues to enjoy the benefit (as they did when other spouse was alive) as there is no GWR (spouse has died - and it is dead spouse's estate that GWR would apply to). Deprivation would only apply if the surviving spouse gifted their half of the house eg to the trust/children.

I don't doubt that you're right technically legally, but a GWR is exactly what it is! The deceased spouse has gifted (willed) their half of their house to their kids with the reservation that the surviving spouse can continue to live in it for the rest of their life. That's clearly a gift with a reservation!

DairyQueen

Well, killing thread 2 to in favour of this thread seems to have killed the discussion on thread 2 stone-dead. Well dead mod.