protecting assets?

upferret

Hi, My friend has asked me to research for her information on protecting her mothers assets. her mother is 83years old and lives with my friend and her husband in her mothers house. her mother is updating her will with the help of a solicitor. The solicitor has advised to change the house into my friends name,(her daughters name) to escape capital gains tax (or something like that) but help the aged said not to do it as it would look like tax evasion. They would like to know what would happen if her mother had to go into a home,or have home nursing care, would she be forced to sell the house to pay for her care? as my friend and her husband live in the house also. I hope this makes sense!
Thanks
Upferret

EdInvestor

There are two issues here: inheritance tax and costs of care. Capital gains tax doesn't apply because both the mother and the daughter live in the property.

If the mother's estate is worth 600,000 or less, then she is not liable for IHT under the new rules, and thus there is no need to try to avoid it.

Is she is liable for care costs then it may maks sense to sign over half the value of the house to the live-in daughter.As long as they share the costs of running the house, this will be regarded by the Revenue as a potentially exempt transfer (PET) so if Mother survives for 7 years there is no IHT to pay.

If the idea is to give away the house to avoid paying care costs, then Help the Aged is right: there is a rule known as "Voluntary deprivation of assets" under which a council will ignore any gifts like this when assessing how much the mother would have to pay for care.However if the gift is made to avoid IHT (as above) it is acceptable.

However at her age, in the event she does need care, it may not be that expensive to pay for the cost using an "immediate needs annuity" which can be value for money as well as offering peace of mind. In any case if the daughter is over 60 or has given up her own home to care for the mother, the council cannot take the house to pay for the care, though it can put a charge on it to prevent a sale without paying back the care costs eventually.

Switching the ownership to 50/50 as above does apparently make it less likely for this to happen, as the value of half an occupied property is effectively nil and th e council cannot force a sale.However it does expose the mother to possible problems if the daughter and son were to divorce or go bankrupt, thus forcing the sale of the property to realise the value of the half share.

upferret

Thats a great help thanks very much!

localhero

Upferret's mother will be entitled to leave an estate of £600,000 free of IHT only if she is widowed and her deceased spouse didn't use any of his nil rate band allowance by making gifts to non-exempt beneficiaries (ie those other than spouse/charity).

Upferret hasn't said that's the case. (The way I understand it, is the friend and her husband live with the mother.

If not, then she will have only one IHT allowance. If her estate is greater than £300k, then I agree that making a gift of a share of the property for tax reasons would defeat the deprivation argument for care fees.

We don't know the ages of the others occupying the property, for if there's anyone aged 60 or more, the property must be diregarded (ie no charge placed on it) in respect of care fees. Likewise if a relative who is incapacitated lives there.

I don't see any merits in the solicitor's advice of transferring the whole property over, as that raises the issue of making a gift with a reservation of benefit. If the mother is not paying a market rent, then the transaction will be disregaded for IHT purposes, and therefore pointless.