Loaning money to a parent for care costs, inheritance tax risk?

am_Cornwall

Hi,

Our mother is going into a care home. To avoid selling her house (as there's still a chance she may come out again) we (her children) are all happy to loan money for the time being to cover the care costs, knowing that we are very likely to get it back from the estate. However, it has just occurred to us that without some form of formal loan agreement this would effectively be subject to inheritance tax (if there's enough in the estate by then that it's above the threshold) - we'd e.g. loan £10k and get £6k back! Has anyone seen any advice on this situation, e.g. a simple template loan agreement? We're not worried about interest etc, just something formal to make it clear when it comes to probate that these are loans to be repaid before the tax liable value of the estate is calculated.

Thanks,

Andy

Keep_pedalling

A loan would not be subject to IHT as it would be classed as a debt owned by the estate. Do any of you have power of attorney for her?

68ComebackSpecial

Are you sure that IHT is even an issue? Depending upon her circumstances the threshold could be £325k, £650k or even £1 million. 

am_Cornwall

Good points, yes two of us do have power of attorney. And we believe there may be IHT, mum and dad were lucky enough to buy a house in London in 1965! We believe the £325k threshold applies in our case? The estate is divided between her five children. (Although of course the estate all depends how long she is in the care home for...but realistically, she is 105  )
Thanks, Andy

getmore4less

am_Cornwall said:

Good points, yes two of us do have power of attorney. And we believe there may be IHT, mum and dad were lucky enough to buy a house in London in 1965! We believe the £325k threshold applies in our case? The estate is divided between her five children. (Although of course the estate all depends how long she is in the care home for...but realistically, she is 105  )
Thanks, Andy

Why?

IF they were married and estate goes to kids there will be up to £1m NIl rate band available if none has been used.

Brie

I presume you have seen the will and your mom is not capable/likely to change it at this time.  In any case I would think that if the 2 of you with POA draw up a simple document stating "A, B, C, D & E are each loaning mom £XXX a month from now til (future date)" then you will be covered should there be any queries on dealing with the estate.  It might be a good idea to query this with a solicitor - might be possible for free on a 1/2 hours consultation or via your legal cover on an insurance policy or through work.

Hopefully the stay in the care home won't be a long one and mom returns happily to home but chances are there will still be care costs for someone to assist her there.

Megandlg

If she goes into a care home, for the first 12 weeks the value of her property is disregarded in financial assessment, so any charges will be based on her income, savings etc alone. If she remains after 12 weeks, she can enter into a deferred payment agreement where the council agrees to pay for her care but place a charge on the home to be claimed when she passes away and the home is sold. 

This would avoid you having to loan money and potentially getting into muddy waters.