Inheritance Tax Question

treecol

Just need to clarify things if you'd be so kind as to help, please?
My Father in law needs to live permanently with someone as he can no longer care for himself. He wants to split his time between my husband and I and his other son and his wife. He also still wants to retain some independence so we'd both need to build extensions to have annexes or possibly move to larger properties if neither could extend. He will be selling his own home and wants to give both sons their inheritance when he does so they can build/buy.
His wife died 5 years ago and she left her part of the estate to him solely. So his IHT rate will be the full £650k when he dies. He will be gifting around £370k divided equally between the two sons. Should he die within the 7 years, I realise the gifts will be included as part of his estate but is the full £650k still exempt from IHT in this case or is it only the £325k due to the gifts? If that is so, would it be better for him to gift the house now to both sons jointly and then they could be the ones selling their own asset to fund building projects, as I believe the nil rate for property to a child/grandchild is £450k ?
Thank you if you can advise.

Tom99

He is getting somewhere to live in return for the £370k gift so you need to be aware of the gifts with reservation rules and if you can avoid that then the Pre-Owned Assets Tax (POAT) rules.

uknick

Something you might be aware of is falling foul of the deprivation of assets rules. I read a case a few years ago of a daughter who built an extension to her house to let her mother stay so she didn't have to go into care. Her mother gave her the cash to build the extension from the proceeds of selling her home.

Unfortunately the mother had to go into care a couple of years later but had no cash left. The council came chasing the daughter for the cash gifted by her mother, from what I recall it amounted to about £110k.

This link has a similar story,

https://www.thisismoney.co.uk/money/experts/article-2637485/Can-parents-sell-home-extend-enter-care.html

treecol

Ok, thank you...as we thought, not easy. So if he gives the proceeds of his house sale to both sons and lives between both homes as they are, with no annex added, then what?
Does he retain the £650k nil rate (his and late wife's nil rate combined) or is only £325k nil rate due to gifts? Or is he still considered benefitting from his gift by living between both sons?

uknick

His estate will have a nil rate band of £650k based on what you've said. As of today does his estate including the house exceed £650k ? If not, there will be no IHT implications for the £370k gift, assuming he does not increase his estate value after selling the house. The IHT calculation for gifts only comes into play if the estate at time of death + the gifts exceeds the nil rate band.

[Deleted User]

Your FIL's estate will also qualify from the 'main residence nil rate band' which for 19-20 is 150K rising to 175K in 20-21. Basically, if he gifts his main residence to his sons he will have an additional 150K of IHT

treecol

No his entire estate, including the house will be under £650k.

uknick

In that case IHT not a worry, just deprivation of assets if he needs to go into a care home. At this point I'd suggest you seek professional advice as to the best way to achieve what you want to do and avoid any risk of a care home fee liability for you and your brother. Off the top of my head I can't think of any legitimate way as you've already accepted your father can't look after himself and I'm sure the council would use this as evidence for deprivation of assets.

If you do look for professional advice I'd first look at organisations such as Age Uk, or Age Concern. They won't have an agenda to sell you a product which'll make them money. I say that because there are companies which will try to sell you some sort of trust to avoid care home fees, but I don't believe these have yet been successful when challenged by a council.


Good luck.

xylophone

Is any kind of very sheltered accommodation available to FIL? Have you checked your local area? He would have help on hand but be able to maintain his independence.

Example
https://www.carehome.co.uk/extra-care-housing/index.cfm/searchcounty/Suffolk

He would be able to sell his property and invest the proceeds - presumably he has pension income etc to fund his day to day costs?

[Deleted User]

treecol wrote: »

No his entire estate, including the house will be under £650k.

In which case, as the estate will not be liable to IHT, you should definitely not gift the house as your brother and you will be liable to CGT when it is sold.

The gain will be based on the disposal proceeds less the value at the time of the gift less costs of sale.

getmore4less

Extensions are not built overnight has t he time line been thought through.

Rather than gifts he could loan the money interest free, with all 4 nil rate bands available there is plenty of of exemptions to cover the loans.
(down size rules and transferable)

This avoids gift with reservations preowed asset and deprivation issues.

Could buy into the properties, that avoids the above and provides better security.


You also have to consider what happens if he outlives any of you.