Parent moving in - bills contributions and 'surplus income'

sorethumbs1992

My father has recently moved in with me as he can't really manage to look after himself at his house sufficiently.  He has health and mobility issues but is still of 'sound mind'.

Obviously my household costs have increased.  Energy, food and council tax (due to no longer being single occupant) have increased.

At the same time my father's monthly outgoings are going to be much less than before.  No council tax/electricity/water/home insurance/car insurance/tv licence/food.  His only expenditure is now really his Sky tv

He does have significant savings and currently selling his property so that will increase his finances.  Whilst I am aware of inheritance tax I've no intention to be trying to reduce his financial assets in any way to affect any potential future care costs/inheritance tax.

I guess it is acceptable to accept a contribution from him towards the monthly costs of living with me, I don't see any argument with that. At the moment he just pays for some of the food shopping and some diesel for getting to health appointments.

My query is....
I have seen that HMRC do allow gifts from 'surplus income' and as he is getting good interest on savings, plus income from pension - minus his reduced outgoings. He is quite happy to contribute to the bills and as I understand this 'surplus income' donation can be a way of dispersing part (of gains made on) financial assets without putting anything at risk when it comes to IHT/Care fees.

I'd be interested if anyone is using this excess/surplus income method.  At the moment my father just uses his card for a weekly shop and fuel when needed as a contribution so its kind of a 'normal expenditure' chipping in type of transaction which appears as it would if he were living alone.  A transfer of excess income seems to be more of an agreement that I need to make sure is done properly

badmemory

But you are not talking here of gifts from income but of sharing expenses as you would with a grown up child coming to live with you.  I keep a household expenses spreadsheet, which includes council tax water energy food/cleaning costs.  But no repair & replacement costs.

sorethumbs1992

I guess I am seeing those two things as connected.  My father has expressed his wish to pass some of his financial income benefits on to me (whilst not affecting his capital).  And as he will have surplus income merely contributing to some bills/food only uses part of his available income after personal expenses.

For example...

He could have £1000 income living in his home alone - £700 outgoings leaving £300 which he could gift?

Living with me the same £1000 he would have less outgoings, say £300.  Meaning he could gift £700?

He could pay towards household bills which would be part of his expenditure, meaning less would be available to gift.


But whats the point if he's living with me, to pay towards bills AND then pay any surplus left over.  Why not just arrange it that after his own personal expenses he gifts the remainder.  I pay all bills and his total capital doesn't increase and affect IHT

Emmia

I think your father would need to identify exactly what he genuinely has as a surplus each month (without touching his savings, and having the same standard of living as before) and he could gift that, monthly. He should also be paying his way in terms of bills e.g. 50% of the council tax, gas, electricity, food etc. before he makes any gifts from income. 

If he does gift, he could write a letter setting this out in detail, saying this is what he is doing... and it might be better if the payments build to a fixed amount stated in the letter rather than being ongoing.

do you have any siblings etc? As the gifts to you would mean he'd probably put less into his savings/investments, which would eventually form part of his estate and would be presumably shared out at that time. If you do, he may wish to gift equally to all of you, and/or for the gift to be recognised in the allocation of the estate - you'd get less then.

does gifting in this way affect savings levels vs thresholds for care funding (I'm presuming not, as a house is being sold), as I think the LA might look at it as a deprivation of assets, given he's already infirm. This is also why a payment marked "bills" to cover his share of  food/utilities and a payment marked "gift" would be a good idea - potentially into different accounts.

Your father should also seek his own legal advice before deciding whether to make these gifts.

HMRC could still decide the gifted money forms part of his estate, and you'd get the bill regardless.

sorethumbs1992

I can appreciate those points and tend to agree that lumping household bills and gifting any excess income in to one transaction is probably not the best way to go about things. Having living costs clearly noted makes it much easier to not be queried in the future.

And I can also appreciate that gifting of excess income is probably aimed at those more independent and not relying on a relative to live with.

However I don't see how IHT or LA can look at it as deprivation of assets if the level of capital isn't dropping below the level that was there before he moved in with me (and adding house sale to capital amount)

I will start recording contributions towards household bills for any future scrutiny.  I tend to think 50% is a bit much and I'm assuming mortgage costs are excluded and he should only contribute towards standard household costs such as energy/CTax etc

And its just me, no siblings

amanda1024

If he's wanting to give you money, I'd have thought you could charge him rent + 50% of bills. Have a look to see what market rate to rent your sort of property is, then figure a fair share (perhaps 1 divided by total number of bedrooms). You can even draft a really basic tenancy agreement to make sure it's all above board. This seems less likely to cause issues for IHT purposes because he's paying you for a service (just as he would if he lived with someone else) rather than having to figure out how to stay within the rules around gifts. 

Keep_pedalling

Gifts from excess income are only really relevant if his net worth is close to or already in IHT territory. This could be up to £1M if he is a widower but half that if he is divorced or single. 

Ignoring gifts for the moment he really should be contributing to half you household expenses (VT, energy costs food transport, ect.). If IHT is relevant then he can add gifting on top of that using his annual £3000 exemption and gifts from excess income. The latter will require him / you to keep detailed records of both his income and expenditure (see box 20 & 21 of form IHT 403 to see what his executor would need to supply on an IHT return).

He can still gift if his estate is unlikely to be subject to IHT but in that case you don’t need to complicate things with using the gifts from excess income exemption.

What is his marital status, and net worth? If widower did he inherit everything from his wife?

Keep_pedalling

A couple of other points, does he have an up to date will, and has he put lasting powers of attorney in place? If not both of those things should be a high priority.

Regardless of how much saving he has he should be able to claim attendance allowance. This can be useful to pay for addition help. 

sorethumbs1992

He has made a will after a divorce several years ago and I'm the only child and beneficiary. He has about 240k in savings. With house being sold for further 200k. So although that is then over the 350k IHT I think there is something regarding owning a house or having sold a house which adds 150k to the IHT threshold so 440k should come in below that. As a former farmer he does still have several fields so I'm not sure how that gets calculated. I believe agricultural land does get a zero exemption for IHT if criteria is met. 

So I guess yes we could ignore gifting and he could in theory give me a lump sum as IHT wouldn't kick in. But then I don't want to do that if care costs are going to develop further down the line as then any lump sums are going to be queried. 

The only reason I was thinking of gifting excess income is that I'm not then reducing any capital when it comes to potential care fees. They can't accuse me of stripping capital if it's not being reduced at all. 

My father does receive the lower attendance allowance already but I've not yet applied for powers of attorney as I'm not sure if receiving money from him from either gifting or household contributions conflicts with duties of POA and might be seen as using those powers for my own gain

Keep_pedalling

sorethumbs1992 said:

He has made a will after a divorce several years ago and I'm the only child and beneficiary. He has about 240k in savings. With house being sold for further 200k. So although that is then over the 350k IHT I think there is something regarding owning a house or having sold a house which adds 150k to the IHT threshold so 440k should come in below that. As a former farmer he does still have several fields so I'm not sure how that gets calculated. I believe agricultural land does get a zero exemption for IHT if criteria is met. 

So I guess yes we could ignore gifting and he could in theory give me a lump sum as IHT wouldn't kick in. But then I don't want to do that if care costs are going to develop further down the line as then any lump sums are going to be queried. 

The only reason I was thinking of gifting excess income is that I'm not then reducing any capital when it comes to potential care fees. They can't accuse me of stripping capital if it's not being reduced at all. 

My father does receive the lower attendance allowance already but I've not yet applied for powers of attorney as I'm not sure if receiving money from him from either gifting or household contributions conflicts with duties of POA and might be seen as using those powers for my own gain

Your fathers estate will have exemptions of £500k as you will still be able to claim his residential NRB under the downsizing rules, so that is considerable below the point of where it kicks in. If he wants to make you a one off gift then it is not going to impact his ability to pay for care costs. In his shoes, assuming you are his only child, then I would certainly be looking at retaining  at least £350k and gift some of the rest.

Please don’t put off getting him to make LPAs especially for finance while he still has his full mental faculties, it really is vital that it is in place just in case you need to use it.

silvercar

Do you have siblings? If so, then you want to be clear what is his contribution to the household and what is a gift. If you don't have siblings then it is all a bit irrelevant - regular gifts would be exempt from IHT if they are out of income and affordable. If he will be nowhere near the IHT limits and you have no siblings, then it is all irrelevant.