Deprivation of assets

westfield47

Hi,

looking for some wise advice! My mum owns her house and has no other assets (she is 70). We would like to help her unlock the equity so she can 'live' more comfortably in the coming years.

Is there any issue with...
a) Her selling the house for £200k.
b) Her gifting us £50k towards a house purchase leaving her £150k to live on.
c) Us buying her a new property in out name for £250k....using £200k of our money and the £50k gift.
d) We then let her live there 'rent free'.

Would appreciate views on whether this is a sensible way to unlock equity for her, or if this would be seen as deprivation of an asset at a later date?

Thanks!

AdrianC

Yes, it's an atrocious idea.

She starts with £200k wealth, she finishes with £150k. This scheme has taken £50k - a quarter - of her assets.
Of course that's going to be seen as deprivation, because it's precisely what it is.

If she wants to move from her current £200k property to a £250k one, and release £150k of her equity, why don't you just lend her the £200k, with a charge against the property? Like a mortgage lender would...

GDB2222

Would you be granting her a lease for life at no rent? If so, there's no deprivation of assets, as the lease is worth more than £50k, if she's in normal health.

In fact, it's a poor deal for you, as you'll be foregoing rent on a £250k house for around 18 years, if she lives her normal life expectancy. 

westfield47

Thanks, yes…a lease for life would be the plan. AdrianC - Appreciate the other way of potentially of doing it, we will investigate more. 

Browntoa

Any move like this could be challenged down the line.

If it's made clear it's a cash gift then 7 year tax rules apply , do she needs to live 7 years for the tax liability to vanish.

Any council is likely to assume she still has £150,000 for care purposes unless valid reasons can be found for spending it

GDB2222

£50k would be within the nil rate band for IHT, so tax is not an issue.

AdrianC

westfield47 said:

Thanks, yes…a lease for life would be the plan.

It would need to be more than a plan. It would need to be explicitly legally drawn-up and implemented to stand any hope of being accepted.

[Deleted User]

Browntoa said:

Any move like this could be challenged down the line.

If it's made clear it's a cash gift then 7 year tax rules apply , do she needs to live 7 years for the tax liability to vanish.

Any council is likely to assume she still has £150,000 for care purposes unless valid reasons can be found for spending it

The 7 year rule wouldn’t apply because it’s a gift with reservation not an outright gift. The OP would only be gifted the £50k on the proviso that the mother gets to continue living in the house or is bought another house with the money. 

That said IHT might not ever be an issue if the house is what make up the bulk of her assets. 

GDB2222

Lover_of_Lycra said:

Browntoa said:

Any move like this could be challenged down the line.

If it's made clear it's a cash gift then 7 year tax rules apply , do she needs to live 7 years for the tax liability to vanish.

Any council is likely to assume she still has £150,000 for care purposes unless valid reasons can be found for spending it

The 7 year rule wouldn’t apply because it’s a gift with reservation not an outright gift. The OP would only be gifted the £50k on the proviso that the mother gets to continue living in the house or is bought another house with the money. 

IHTis really not an issue, as the nil rate band is £325k, whereas the entire wealth of the lady is £200k. 

CGT is more of an issue.