Care home fees - can we legitimately dispose of some savings?

Aranyani

Mickey666 said:

Aranyani said:

Mickey666 said:

naedanger said:

Mickey666 said:

Keep_pedalling said:

Mickey666 said:

Interesting.  I wonder how long it will be before the taxman cottons on to this ‘deprivation of assets’ thing.  Why does it seem to be generally acceptable to avoid IHT by making various financial arrangements (ie basically giving away money and assets as PETs) but it’s generally frowned upon to make similar arrangements to avoid care home fees?   Perhaps councils should be limited to searching back only seven years for deliberately ‘deprived assets’, making it similar to the PET thing.

In practice gifts from that far back are totally untraceable so you would get away with it, but who in their right mind gives away their entire savings risking their long term security?

Doing silly things like giving your home away will always fall foul to both IHT avoidance and DOA as it is both a gift with reservation (so does not fall out of the estate after 7 years) and unlike bank accounts is held on public record.

Could the gift with reservation thing be easily avoided by using equity release instead?  Unless it is wished to pass on the physical property, this could be a way to release the value held in the property, which could then be gifted away as desired, while retaining the right to live in the property until death - the objective being to die with as small an estate as feasible. 

Yes, it would mean a chunk of value being taken by the equity release lender but how would that compare with the the chunk taken by the taxman if IHT is payable?  I'm mainly thinking of large properties here, ones that would definitely incur IHT for the owner's estate, even with the possible £1m allowances.

I think those who are wealthy aren't that worried about care home fees they can pay them out of income/pensions etc. 

IHT on the other hand is something they worry about, and there is no doubt a huge highly paid industry avoiding it. What was the last Duke of Westminster's net work and how much IHT did his estate pay? And a large part of the value of his estate was (ultimately) held in UK property that can't be physically moved. Nevertheless with the clever use of probably offshore investment companies, trust funds etc the value of the estate for IHT purposes is far less than the true economic value of the estate enjoyed by the family.

Hmm - one extreme to the other!  I wasn't really thinking about billionaire's offshore property arrangements, more the sort of person with a large but now empty family home and having retired with only a modest pension income.  The asset-rich, cash poor sort of person.  Large houses do not automatically infer being wealthy in a practial sense, though it's a commonly made mistake.

Surely the best thing for that person to do is to downsize? 

Why?  Why should someone be expected to move out of their family home (with all the associated expense and upheaval) with all its comforts and memories just because someone else thinks it is too large for them?  Who decides when a house is 'too large' anyway?  

Why?  Because the scenario given was someone with a large empty house who wanted to release cash from it.  I'm sure they could decide themselves.

Mickey666

Aranyani said:

Mickey666 said:

Aranyani said:

Mickey666 said:

naedanger said:

Mickey666 said:

Keep_pedalling said:

Mickey666 said:

Interesting.  I wonder how long it will be before the taxman cottons on to this ‘deprivation of assets’ thing.  Why does it seem to be generally acceptable to avoid IHT by making various financial arrangements (ie basically giving away money and assets as PETs) but it’s generally frowned upon to make similar arrangements to avoid care home fees?   Perhaps councils should be limited to searching back only seven years for deliberately ‘deprived assets’, making it similar to the PET thing.

In practice gifts from that far back are totally untraceable so you would get away with it, but who in their right mind gives away their entire savings risking their long term security?

Doing silly things like giving your home away will always fall foul to both IHT avoidance and DOA as it is both a gift with reservation (so does not fall out of the estate after 7 years) and unlike bank accounts is held on public record.

Could the gift with reservation thing be easily avoided by using equity release instead?  Unless it is wished to pass on the physical property, this could be a way to release the value held in the property, which could then be gifted away as desired, while retaining the right to live in the property until death - the objective being to die with as small an estate as feasible. 

Yes, it would mean a chunk of value being taken by the equity release lender but how would that compare with the the chunk taken by the taxman if IHT is payable?  I'm mainly thinking of large properties here, ones that would definitely incur IHT for the owner's estate, even with the possible £1m allowances.

I think those who are wealthy aren't that worried about care home fees they can pay them out of income/pensions etc. 

IHT on the other hand is something they worry about, and there is no doubt a huge highly paid industry avoiding it. What was the last Duke of Westminster's net work and how much IHT did his estate pay? And a large part of the value of his estate was (ultimately) held in UK property that can't be physically moved. Nevertheless with the clever use of probably offshore investment companies, trust funds etc the value of the estate for IHT purposes is far less than the true economic value of the estate enjoyed by the family.

Hmm - one extreme to the other!  I wasn't really thinking about billionaire's offshore property arrangements, more the sort of person with a large but now empty family home and having retired with only a modest pension income.  The asset-rich, cash poor sort of person.  Large houses do not automatically infer being wealthy in a practial sense, though it's a commonly made mistake.

Surely the best thing for that person to do is to downsize? 

Why?  Why should someone be expected to move out of their family home (with all the associated expense and upheaval) with all its comforts and memories just because someone else thinks it is too large for them?  Who decides when a house is 'too large' anyway?  

Why?  Because the scenario given was someone with a large empty house who wanted to release cash from it.  I'm sure they could decide themselves.

Yes, of course they could, indeed should, decide for themselves, which is probably why I was a bit over-sensitive about your "surely the best thing . . . " comment, which just seemed a bit too judgemental to me.

I think it's a common perception - 'why do you need such a big house?'  'Why do you need all that land?' etc.  Well why not?

A_Lert

No.

Plain and simple. Legally a major factor is the purpose and your purpose is, by your own admission here, to avoid having to contribute to care costs.

Aranyani

Mickey666 said:

Aranyani said:

Mickey666 said:

Aranyani said:

Mickey666 said:

naedanger said:

Mickey666 said:

Keep_pedalling said:

Mickey666 said:

Interesting.  I wonder how long it will be before the taxman cottons on to this ‘deprivation of assets’ thing.  Why does it seem to be generally acceptable to avoid IHT by making various financial arrangements (ie basically giving away money and assets as PETs) but it’s generally frowned upon to make similar arrangements to avoid care home fees?   Perhaps councils should be limited to searching back only seven years for deliberately ‘deprived assets’, making it similar to the PET thing.

In practice gifts from that far back are totally untraceable so you would get away with it, but who in their right mind gives away their entire savings risking their long term security?

Doing silly things like giving your home away will always fall foul to both IHT avoidance and DOA as it is both a gift with reservation (so does not fall out of the estate after 7 years) and unlike bank accounts is held on public record.

Could the gift with reservation thing be easily avoided by using equity release instead?  Unless it is wished to pass on the physical property, this could be a way to release the value held in the property, which could then be gifted away as desired, while retaining the right to live in the property until death - the objective being to die with as small an estate as feasible. 

Yes, it would mean a chunk of value being taken by the equity release lender but how would that compare with the the chunk taken by the taxman if IHT is payable?  I'm mainly thinking of large properties here, ones that would definitely incur IHT for the owner's estate, even with the possible £1m allowances.

I think those who are wealthy aren't that worried about care home fees they can pay them out of income/pensions etc. 

IHT on the other hand is something they worry about, and there is no doubt a huge highly paid industry avoiding it. What was the last Duke of Westminster's net work and how much IHT did his estate pay? And a large part of the value of his estate was (ultimately) held in UK property that can't be physically moved. Nevertheless with the clever use of probably offshore investment companies, trust funds etc the value of the estate for IHT purposes is far less than the true economic value of the estate enjoyed by the family.

Hmm - one extreme to the other!  I wasn't really thinking about billionaire's offshore property arrangements, more the sort of person with a large but now empty family home and having retired with only a modest pension income.  The asset-rich, cash poor sort of person.  Large houses do not automatically infer being wealthy in a practial sense, though it's a commonly made mistake.

Surely the best thing for that person to do is to downsize? 

Why?  Why should someone be expected to move out of their family home (with all the associated expense and upheaval) with all its comforts and memories just because someone else thinks it is too large for them?  Who decides when a house is 'too large' anyway?  

Why?  Because the scenario given was someone with a large empty house who wanted to release cash from it.  I'm sure they could decide themselves.

Yes, of course they could, indeed should, decide for themselves, which is probably why I was a bit over-sensitive about your "surely the best thing . . . " comment, which just seemed a bit too judgemental to me.

I think it's a common perception - 'why do you need such a big house?'  'Why do you need all that land?' etc.  Well why not?

No judgement, I'd love a house too big for me!   It just seems the obvious solution to the dilemma at hand, doesn't it?

Mickey666

A_Lert said:

No.

Plain and simple. Legally a major factor is the purpose and your purpose is, by your own admission here, to avoid having to contribute to care costs.

So what if the purpose of giving the money away was to help a child buy their first house?  That would be alright then would it?

Savvy_Sue

Mickey666 said:

A_Lert said:

No.

Plain and simple. Legally a major factor is the purpose and your purpose is, by your own admission here, to avoid having to contribute to care costs.

So what if the purpose of giving the money away was to help a child buy their first house?  That would be alright then would it?

No, it would not be alright if at the time you gave that money away it was evident that you would then be deprived of the means to pay for your own care / care home. 

Mickey666

It’s this ‘it was evident’ test that bugs me.  Who decides?
My father is 85, is fit and healthy, has run sub-3hour marathons, still runs three time a week and had clocked up 200 park runs before they were closed down this year because of COVID-19.  Is it ‘evident’ today that he will need a care home?
Or consider a 50 year old normal healthy person - is it ‘evident’ today that they will need a care home in the future?
Of course, anyone COULD require a care home in the future and I’m sure there are solid statistics to show how many people do end their days in care homes, but how does that relate to an individual person who wishes to give away a large amount of their money?  Even if we can boil it down to an X% risk, what would that mean in practice?   We don’t similarly judge people who don’t make adequate pension provision for themselves by withholding a portion of their state benefits so why should care home requirements be treated differently?  After all, it’s a good bet that more people will need a pension than a care home.
This whole judgement thing is very unsatisfactory.  Hard and fast definitive rules would be fairer, so that everyone knew where they stood.

wilfred30

Mickey666 said:

It’s this ‘it was evident’ test that bugs me.  Who decides?

I refer you to the very first paragraph of the opening post which talks about the probability of having to go into a care home within a timescale of weeks/months not years.  So it would indeed be 'evident' to everyone what their intention was in terms of spending money in order to avoid care home fees.

Mickey666

In this specific case, yes, I agree.  I was thinking about the wider aspects.

wilfred30

Generally speaking then, I presume it would be for the Local Authority to decide as they would be lumbered with paying the cost of the care for someone who couldn't pay it themselves.