Inheirtance Tax - Anything to watch out for?

Bolt1234

My 91 year old parent lives in a retirement complex near me quite happily having sold her house in London last year.  She has nearly £700k after the sale. I am her POA.  She has full capacity but struggles with the paperwork for the financials and doesnt even have a computer and definitely wont use email!

So she is effectively well over the inheirtance tax threshold of £500k. Will states house and her estate goes to three grown up children.  I will be the Executor.  My siblings arent in the UK and are happy to reserve their powers.  

She realises just how much money she says but I have said to take care regarding any care home costs although again I feel she has plenty to see her through.   I have paid the retirement complex until Mar 24 as she had a minimum 1 year contract.  She is renting an apartment btw.

 She has indicated that now the majority of money is invested in NS&I Direct Saver and Growth Bonds she still has £20k sitting in her bank account and she wants to start giving more expensive birthday and Xmas presents to the immediate family - something like a present costing £400 for each family member at birthday and Xmas (there are in total six of us).  Her outgoings are very small and she has a private pension cirac £9.5K and the state pension plus Attendance Allowance.

That £700k will of course grow over the coming months/years.  I have immediate access to £100 within NS&I for any large care home bills should it come to that but the retirement complex provides care for her (supervision of showers etc and I deal with her post, financials and shopping).

Any pitfalls to expensive presents like this?  She has the money to now splash out and gets pleasure in looking at my IPAD and choosing something.   No, she never spent this sort of amount on people.  More like £100.   She also wants to do this sooner rather than later.  

I already do the £3k allowance to myself and my siblings.  I also know there is a £250 allowance to anyone else (it seems bizarre there is no limit on how many people)

She divorced my Father 40 years ago so no double IRT allowance.  

 

Keep_pedalling

She is she is certainly in a very good position to fund the best care she might need in the coming years. If she gifted one off gifts of £200k there is a chance she might live to 98 and reduce any IHT, but if that does not work out she would at least see some of her money put to good use.

Deprivation of assets would not come into as she will still have plenty to cover any foreseeable care needs.

Now would be a good time to do this as it won’t be possible if she looses mental capacity.

Brie

Isn't there something about being allowed to make larger gifts for significant events?  So £500 for wedding presents or graduation or something?  

I would be getting her (you with her input) to put together a "letter of intent".  This will outline what she wants to do - pay £X for any birthdays, £Y for Christmas, £ZZZ for weddings, christenings, graduations etc.  So even if you don't know these things will be happening yet Mom can say what she expects will happen with her money at some point in the future even if she isn't in a state to conduct her affairs as easily as she can now.  With this (signed and dated) no one will be in a position to question when you as POA send money off in various directions.  It can also include things like what she wants to happen with her funeral or if she thinks she would like a DNR order assuming you are also there as health POA.  (my mom has been quite blunt about what she does and definitely does not want to happen!!)

Bolt1234

Thank you both.  Much appreciated.  I doubt she will live until 98.  She is doing just fine in the retirement complex. She will never be in a position whereby she can be accused of Deprivation of assets.  Even if she was the family would step in.  I know it wont come to that.  Even if she lives until 100 at the care home rate around here of £1200 for a very nice care home that would still only equate to £561K.

My main question is if on the Probate Form it looks like she was giving expensive gifts at circa £500 each on birthdays and Christmas that HMRC would say I was trying to get rid of some of her money to reduce the IRT bill?  She will probably always have some IRT to pay and that is fine but would HMRC  question that maybe the overall estate was say £20k light assuming 6 bithdays presents at £500 each plus £500 each at Xmas = £6k per year for a few more years.

Am I worrying unnecessarily?  I like the idea of a letter of intent.  She has full capacity (at present).  She is always asking everyone who is helping support her in the retirement complex whether she can buy them something?  She cannot get out herself and of course cannot do online shopping but I can do whatever she requires.

I also have to say that a retirement complex has worked out very well for her.  Independent living with the option to buy care and a Bistro onsite for anyone who wants it.  Definitely rental was right for her. Others have brought and they are less happy.  She has a tenancy agreement that says providing she keeps to the tenancy agreement she stays there forever!  I hope she does.  She was in a care home after a recent bout of deliem and it wasnt great.   I also think that gave her the wake up call to make the independent living work even though we all left it rather late to move her.

She has given £5k to my Sister who got married recently.  No other significant events on the horizon I am afraid.

Bolt1234

She has given me some guidance for her funeral and already there is a DNR in the fridge!

Keep_pedalling

Bolt1234 said:

Thank you both.  Much appreciated.  I doubt she will live until 98.  She is doing just fine in the retirement complex. She will never be in a position whereby she can be accused of Deprivation of assets.  Even if she was the family would step in.  I know it wont come to that.  Even if she lives until 100 at the care home rate around here of £1200 for a very nice care home that would still only equate to £561K.

My main question is if on the Probate Form it looks like she was giving expensive gifts at circa £500 each on birthdays and Christmas that HMRC would say I was trying to get rid of some of her money to reduce the IRT bill?  She will probably always have some IRT to pay and that is fine but would HMRC  question that maybe the overall estate was say £20k light assuming 6 bithdays presents at £500 each plus £500 each at Xmas = £6k per year for a few more years.

Am I worrying unnecessarily?  I like the idea of a letter of intent.  She has full capacity (at present).  She is always asking everyone who is helping support her in the retirement complex whether she can buy them something?  She cannot get out herself and of course cannot do online shopping but I can do whatever she requires.

I also have to say that a retirement complex has worked out very well for her.  Independent living with the option to buy care and a Bistro onsite for anyone who wants it.  Definitely rental was right for her. Others have brought and they are less happy.  She has a tenancy agreement that says providing she keeps to the tenancy agreement she stays there forever!  I hope she does.  She was in a care home after a recent bout of deliem and it wasnt great.   I also think that gave her the wake up call to make the independent living work even though we all left it rather late to move her.

She has given £5k to my Sister who got married recently.  No other significant events on the horizon I am afraid.

I thihink she has made the right choice in renting, reterment places are notoriously difficult to sell once the owner has passed on, renting is more flexible.

As for gifting you have no need to worry about HMRC queuing anything if you are declaring non exemp gifts. Christmas and birthday gifts are a bit of a grey area, we certainly don’t include them in our gift records 

Bolt1234

Thank you Keep.  I am certainly not looking at starting to give out £50k to each of the children!  I think Mum would love to start giving out some more luxury gifts.  Thinking of a Jo Malone Gift Hamper for my sister whose birthday is coming up very soon.  Cost of it is £350!  I know but its Jo Malone.....that is the sort of thing I was thinking of or a couple of theatre tickets and dinner for her grandson and his partner.

No more than £500 for each person which I think is reasonable.  I would let her give out the presents of course (but I have to think of them!).  She is coming to us for Xmas as she now lives very locally to me.  I am not going to give cash.  I dont honestly think that is in the spirit of what we are trying to do here.

Keep_pedalling

Bolt1234 said:

Thank you Keep.  I am certainly not looking at starting to give out £50k to each of the children!  I think Mum would love to start giving out some more luxury gifts.  Thinking of a Jo Malone Gift Hamper for my sister whose birthday is coming up very soon.  Cost of it is £350!  I know but its Jo Malone.....that is the sort of thing I was thinking of or a couple of theatre tickets and dinner for her grandson and his partner.

No more than £500 for each person which I think is reasonable.  I would let her give out the presents of course (but I have to think of them!).  She is coming to us for Xmas as she now lives very locally to me.  I am not going to give cash.  I dont honestly think that is in the spirit of what we are trying to do here.

Those sort of gifts with the level of wealth she has are hardly going to make a dent in her savings, and I would not be worrying about having to declare them on an IHT return. 

Bolt1234

Only thing is that she is not paying out of normal income.  Her rent at the retirement complex is over £3k per month.  Her two pensions equate to £20k per year BUT of course she has the 'profit' from her old house...

Alphatauri

Interest on savings is also “income”, she will pay tax on it unless in an ISA etc. 

Bolt1234

Even with her current pensions and income from her savings this will equate to circa £40k.  Her rental on her apartment is just over £40k per year so she doesnt have any spare 'income'. I dont want HMRC to accuse me as the Executor of my Mothers will of trying to get rid of her money and reduce the IRT bill when the time comes