IHT & Options

Rasher

Hi
My Dad passed away at Christmas, he and my Mum had a joint mortgage which myself and 2 siblings have since paid off with money my Dad left us.  So my Mum still lives in the house alone which is worth approx £240k.   My Dad left the house to his 3 children ie us in his will.   But as my Mum is the joint owner I believe she takes sole ownership now if someone can confirm?  ( Will means little or so Im told )     

My main question is this,  my Mum is wanting to sign the house over to us ( 3 children )  What are her options , ie is it better to do this now as she intends to live out her days in the house.  Im aware if she is forced to go into a care home then the Government will take the house to pay for her care.  So with this in mind is it better to sign the house over now and then is there a 7 year rule etc ?    Any help would be appreciated , thanks

Al

[Deleted User]

A crazy thing to do!

1) As she is continuing to live in the house the gift to her children would be classed as one ‘with reservation of benefit’ and would still form part of her estate. In other words, from an inheritance tax point of view, the gift didn’t happen. The seven year rule is irrelevant. 

https://mcl.accountants/news/gifts-with-reservation/

2) When the house is ultimately sold each of the three children would be liable to capital gains tax on any increase in value. 

The house, currently free of all taxes, could well result in two taxes being applied. 

p00hsticks

Rasher said:

Dad left the house to his 3 children ie us in his will.   But as my Mum is the joint owner I believe she takes sole ownership now if someone can confirm?  ( Will means little or so Im told )     

Sorry for your loss. 
Who inherits the house depends on whether the house was owned as 'joint owners' or 'tenants in common'. In the former case it automatically passes directly to the other joint owner in the event of the first death, regardless of what a will says. In the latter case then in the event of one owners death their share of the property passes to whoever they will it to (or according the the laws of intestacy if they didn't have a will).    


Rasher said:

My main question is this,  my Mum is wanting to sign the house over to us ( 3 children )  What are her options , ie is it better to do this now as she intends to live out her days in the house.  Im aware if she is forced to go into a care home then the Government will take the house to pay for her care.  So with this in mind is it better to sign the house over now and then is there a 7 year rule etc ?    Any help would be appreciated , thanks

Why is she wanting to do this ? The '7 year rule' relates to IHT and unless she has a large amount of other assets, then it almost certainly won't come into play as her estate is (at present ) well under her £325k IHT allowance (plus up to another another £175k allowance if she wills the house to direct descendants.   

There is no '7 year rule' with regard to the potential deprivation of benefits consideration if she needs to go into care. If the authorities believe that her primary reason for giving away her house was to avoid paying for her future care then I believe they can act as if she still owned that asset, even if the transaction was a number of years ago.

As is often mentioned when this topic comes up on these boards,  there are also several other potential downsides to such an action. Unless she pays you a market rent for living in the property it is a 'gift with reservation of benefit; and is still treated as her asset for IHT purposes. Also If any of the new owners get divorced or go bankrupt she could end up homeless if a house sale is forced, and if the owners are not living in the property then they face a potential Capital Gains tax bill when the property is eventually sold.  

And having given away all her assets, if she does have to go into care and manages to convince the authorities that she had legitimate reasons for giving her house away, she runs the risk of ending up in the cheapest 'over my dead body' care home that the local authority can afford, with little to no say in where she goes. Do you want that for her ?

Brie

It will depend on how the home was owned.  Was it as joint tenants (in which case your mom inherited your dad's share) or tenants in common (in which case the 3 of you inherited dad's share on his death but mom retains her share).   Whomever told you the will means little doesn't necessarily know what they are talking about.  It will depend on how he owned the house with mom.

I think if you back track a bit and get it recognised that the 3 of you bought a portion of the house when you cleared the mortgage then that would be a good thing.  That way the house doesn't necessarily need to be sold if mom goes into care, just that a lien would be put on it if the council needs to fund her care outside of the home.  If they are funding care for her inside the home then the value she has in the home will be disregarded, and just her savings will count.  

So does she have any money?  Would she be able to self fund care (given that it would be at least £1k a week)?

If you sibling each own a 6th and mom owns 1/2 then yes you will need to pay capital gains on your portion on the difference between the value now and when it might be sold.  

Are any of you likely to want the house to live in or to be in to take care of mom at some point?  

If you decide that you don't want to actually own the house (to avoid capital gains at least) perhaps there can be something drawn up between mom and yourselves to say that you have loaned her the money to pay off the mortgage.  That way you would have a claim on what you inherited from dad when the house is sold.

Albermarle

Im aware if she is forced to go into a care home then the Government will take the house to pay for her care.  

Although it is possible to 'lose everything' to care costs, in practice it does not actually happen as often as is popularly thought. There is a certain amount of scaremongering in the media, that means many older people are worried about something that may never happen.
Firstly the majority of older people never go into a care home. Plenty will need some home care, but normally that is significantly less expensive ( with some exceptions) .
Of those that do go into a care home, the average stay is around two years.

So although it is possible that the £240K house will be 100% lost to care fees is possible, it is unlikely.

By the way it is not the Government you are dealing with when it comes to social care issues, but the local authority. I think normally if she did need care funds then you/the family would sell the house, and pay for care from the proceeds, rather than them ' taking the house' 

Keep_pedalling

It would be absolutely idiotic for her to sign her home away, but it does appear that the three of you have a financial interest in the house even if your father could not leave you his share of the house because it was owned as joint tenants, because you have paid off the mortgage.

If the will was drawn up by a solicitor I would have expected them also to have advised and assisted your parents to split the tenancy and rather than leave his share to you outright, to leave it in an immediate post-death interest trust and your mother given a life interest, as that protects both your inheritance and her security. It is also the most tax efficient as your mother retains the beneficial ownership and CGT will never come into the picture.

If on the other hand this was a DIY will I expect none of that was done. 

So perhaps you could tell us what the wording of the will is with regards to the house (redacting any personal information).