Planning to minimise IHT involving nursing home fees

Busymole

My wife has an aunt living in a nursing home paying c£8k per month. The aunt has enough cash to continue paying her costs for only another 6 months. The aunt's pensions amount to approx. £1200 per month.
The aunt's only other asset is a house worth approx. £500k; the house is occupied by my wife's sister (75yo) and husband (85yo).
As I understand, the house cannot be sold to pay the nursing home fees.
The aunt's will leaves the house to my wife and sister, so there is no NRRB applicable
Am I correct that when the aunt's capital reduces to below £23k, the LA will be obliged to pay some if not all of the nursing home fees?
We are also considering a scheme whereby the continuing care costs are paid by my wife and her sister and recorded as a debt against the aunt's estate, which would then be deductible from the estate's value at her death. 
Any advice would be welcome.

Brie

Yes the house will not be included as an asset if the LC are looking at taking over the payment of her care home fees.  I would check with the care home if it's one that the LC has any responsibility for residents.  It's entirely possible that the LC will say it's too expensive and that Aunt must move to a cheaper one.  

Yes wife and sister could pay the costs but this might mean that the LC will not contribute at all as they've found someone else to take responsibility.  Is Aunt capable of changing her will or is there someone with PoA for Aunt who would approve Wife and Sister making large payments on her behalf?  And this debt won't be paid until the house is sold which reduces the possible £200k amount Wife will inherit.  Does Sister & Husband have enough to maintain the house as well as Sister paying towards Aunt's care?

Busymole

Thanks for your reply, Brie.
My wife and her sister have POA over their aunt's financial affairs. They both have large cash holdings arising from a recent legacy and could afford to maintain the house and contribute towards funding aunt's care.
The aunt is very contented in her home, the prospect of moving her to somewhere cheaper is off the table.

Rodders53

Playing Devil's advocate:

Everything done under donor POA must be in the Donor's interest.  Agreed?

Is taking an (interest free?) Loan out from family members for Care Home fees to avoid future IHT in the donors best interests...  It is in the Niece's interest, of course (to the tune of up to £70k, perhaps)?

Best seek proper Legal advice.

Grumpy_chap

Busymole said:

My wife has an aunt living in a nursing home paying c£8k per month. The aunt has enough cash to continue paying her costs for only another 6 months. The aunt's pensions amount to approx. £1200 per month.
The aunt's only other asset is a house worth approx. £500k; the house is occupied by my wife's sister (75yo) and husband (85yo).
As I understand, the house cannot be sold to pay the nursing home fees.
The aunt's will leaves the house to my wife and sister, so there is no NRRB applicable
Am I correct that when the aunt's capital reduces to below £23k, the LA will be obliged to pay some if not all of the nursing home fees?
We are also considering a scheme whereby the continuing care costs are paid by my wife and her sister and recorded as a debt against the aunt's estate, which would then be deductible from the estate's value at her death. 
Any advice would be welcome.

Busymole said:

Thanks for your reply, Brie.
My wife and her sister have POA over their aunt's financial affairs. They both have large cash holdings arising from a recent legacy and could afford to maintain the house and contribute towards funding aunt's care.
The aunt is very contented in her home, the prospect of moving her to somewhere cheaper is off the table.

I can't quite work out the relationship between the Aunt in the nursing home and the husband & wife couple living in the Aunt's house.
AIUI, the house can only be excluded from potential sale to pay nursing home fees if the people residing in the house are "dependent" upon the Aunt.  There is a specific, and quite narrow definition of "dependents" that achieve this eligibility.
It is not clear from what has been said whether that "dependent" status has been met.

You mention that the Aunt has savings that are diminishing and will only cover the next six months or so of nursing home fees.
You also mention that the Aunt has pension income of around £1.2k monthly.
Why doesn't the Aunt have rental income from the tenants living in her house?

The issue about the Aunt's nursing home fees being met by the LA once her capital falls to £23k may not be as cut and dried as suggested in the OP.  The Aunt still has the capital of £500k house.  Subject to "dependency", the LA may require that the house is sold now.  If not, then the LA may meet care home fees now, but at the same time register a charge against the property so that when it is sold, the LA can recover the expenditure.

As much as the PoA requires to act in the interests of the Aunt, and it is not clear that the Aunt borrowing money from others so that the couple may remain in the house is in the interests of the Aunt.
The idea of this loan is not far removed from the LA holding a charge against the property.  Both approaches require that the Aunt accrues a debt which is to be settled at death, presumably by selling the house.  Where will the current couple living in the house live at that point?

If there are two people with "large cash holdings", why don't the couple living in the Aunt's house buy the house now (at open market value)?  The Aunt will then have the funds required to pay for nursing home costs and not have the prospect of moving somewhere else.

Out of interest, how old is the Aunt?

Busymole

Rodders53.
Thanks for your advice. The aunt is 101 and compos mentis but wished her financial affairs to be handled by her nieces. The aunt's primary desire is to remain in her current home until her death. Secondary to that is that her niece( my wife's) sister can continue to live in the house owned by the aunt. Incidentally there is no formal tenancy, the niece and her husband have lived there for around 50 years and have maintained the property themselves.
I agree that the purpose of providing the aunt with a loan from her nieces instead of a gift is a means to reduce the estate's IHT liability, but it doesn't in my view adversely affect the aunt's wishes.
My wife is seeking legal advice from "Which", so far without much progress.

Busymole

Grumpy_Chap.
Thanks for your advice.
The husband and wife living in the aunt's house are her niece and partner. The aunt has never lived in the house, it was bought in the mid 1970'sto be the niece's home. There is no formal tenancy, as far as I know rent is not paid, the house is maintained by the occupiers.

The occupiers do not have enough money to buy the house outright.

The aunt's will leaves the house 50/50 to my wife and her sister.

The aunt is 101.

I will investigate "dependency". I had earlier been advised that the age of the house occupiers (75 & 85) meant that they are protected from eviction. I will need to confirm that. The plan at death is for the current occupiers to remain in the house until both have died, as the aunt wants this to happen.

My wife and her sister should have sufficient funds to pay the IHT.

Grumpy_chap

Busymole said:

Grumpy_Chap.
Thanks for your advice.
The husband and wife living in the aunt's house are her niece and partner. The aunt has never lived in the house, it was bought in the mid 1970'sto be the niece's home. There is no formal tenancy, as far as I know rent is not paid, the house is maintained by the occupiers.

The occupiers do not have enough money to buy the house outright.

The aunt's will leaves the house 50/50 to my wife and her sister.

The aunt is 101.

I will investigate "dependency". I had earlier been advised that the age of the house occupiers (75 & 85) meant that they are protected from eviction. I will need to confirm that. The plan at death is for the current occupiers to remain in the house until both have died, as the aunt wants this to happen.

My wife and her sister should have sufficient funds to pay the IHT.

Thank you for providing clarifications.

With regard to the house, how will this be dealt with at whenever the time comes for the Aunt to move to the care home in the clouds?
It seems as though your wife and sister will inherit half the house each. 
How will that be actually arranged?  Do the sister and partner have resources to buy out your wife's half?
Bear in mind that your wife having ownership of half a house may come with complications, for example could affect any entitlement to means tested benefit, or possibly assessed as available if the time ever comes that your wife ever needs care home, etc.

In this case, avoiding IHT may not be the best tax move.
The house was purchased in 1970's and never lived in by the Aunt.  If the house is sold while Aunt is still alive, there will be CGT on the gain in house value.  It will be the majority of today's value of the house.
If the Aunt retains ownership of the house, and there is little else in the Estate, then the house avoids CGT but some of the value will be subject to IHT.  If there has been a charge on the property by Local Authority for care fees, or any other debts in the Estate, that reduces the value of the Estate so reduces the IHT liability.
It is quite possible that any IHT will be less than what any CGT would have been.

I am not an expert on the "dependents" part of an elderly person being protected from eviction, but it has been mentioned in other threads in these boards and is important to understand.  (Other contributors may be able to advise with better precision than I.)

The "dependents" thing makes sense if considering the extremes:

• Person A goes to care home leaving spouse (above x years) in the property - can't sell the house.  I am not even sure that age is relevant here.
• Person A goes to care home leaving senior adult children (above x years) in the property - can't force eviction.

In both the above scenarios, the person that cannot have the house sold from under them has a clear "dependent" relationship with the Person A, and until Person A went into care home, all were living as a family unit.

Then the other extreme:

• Person A goes into a care home and has no assets other than a BTL property that happens to have Tenant in place that above a certain age (x years).

 This is purely a business relationship, there is no link or "dependent" connection between Person A and the Tenant.  No reason that the Tenant should not be evicted, so long as proper process is followed under rental rules.

I am not sure where the situation between Aunt and Niece lies in the two extremes.  Initially, it would appear to be nearer the "business relationship" end than the "dependent" end.  However, the world is complicated - there could be good reasons (and perhaps unfortunate circumstances) as to why the Aunt provided accommodation on a favourable basis to the Niece, which might suggest a "dependents" relationship.


I would also assess this by winding the clock back.

In the 1970's the Aunt could have gifted the house to the Niece.  That would mean there are no considerations now about IHT, meeting the Aunt's care fees, CGT if the house is sold etc.

The Aunt did not gift the house to the Niece. 
That may have been out of a sense of fairness, if the Aunt was only able to support one Niece and not the second (OP's wife?)
That may have been because the Aunt considered all those years back that she may need to realise the value of the house at some point.  That point may have arrived.
That may have been because the Aunt never expected the Niece to remain in the house for 50-odd years - perhaps expecting the value of the house to support retirement?

Lots of areas of speculation are possible, but I doubt the full facts can be confirmed after all this passage of time.

mybestattempt

I've just read the relevant Age UK fact sheet (FS 38) and it seems to confirm the niece would be a "qualifying relative" for the property to be disregarded in any LA financial assessment, but only if the property had been the aunt's only and main residence before she moved into the care home.

It seems as the aunt did not live in the property the full value would come into any  LA financial assessment.

I don't know enough on the subject to offer an opinion as to whether the OPG would accept the loan arrangement both nieces are considering as being in their aunt's best interests.

However, perhaps some thought should also be given to the situation if the niece living in the house passes away before her partner and her aunt.
 
I think some professional financial and legal advice is required here and I'm not sure whether advice from Which falls into that category.
 

Grumpy_chap

mybestattempt said:

I've just read the relevant Age UK fact sheet and it seems to confirm the niece would be a "qualifying relative" for the property to be disregarded in any LA financial assessment.
 

I think you may mean this fact sheet:
https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs38_property_and_paying_for_residential_care_fcs.pdf

Page 7 part 5.1 seems to cover the disregard that the OP would be interested in.  
It does, indeed, indicate that Niece is a relative in this context (satisfying what I referred to above as "dependents").
However, I think the disregard would not apply in this case because that is reference to the "main or only home" of the person that went into care.  In this case, the house in question was never lived in by the individual that went into care so it cannot be their "main or only home".

mybestattempt

Grumpy_chap said:

mybestattempt said:

I've just read the relevant Age UK fact sheet and it seems to confirm the niece would be a "qualifying relative" for the property to be disregarded in any LA financial assessment.
 

I think you may mean this fact sheet:
https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs38_property_and_paying_for_residential_care_fcs.pdf

Page 7 part 5.1 seems to cover the disregard that the OP would be interested in.  
It does, indeed, indicate that Niece is a relative in this context (satisfying what I referred to above as "dependents").
However, I think the disregard would not apply in this case because that is reference to the "main or only home" of the person that went into care.  In this case, the house in question was never lived in by the individual that went into care so it cannot be their "main or only home".

I did mean that fact sheet and it seems I was editing my post, while you were posting, to cover the point that the property had not been the aunt's only or main residence.