Inheritance tax and care home fees question

rebsiem

Good morning

I am unsure about the following (Google has not be my friend in this instance).  A relative has dementia and the family have reached the point where we have realised she needs to go into care as we can no longer provide a safe environment for her.  She has 2 adult children who have their own families, and her husband died 10 years ago.  Her house is currently worth £450k, but in total her assets are probably under £500k.  The family will need to sell her house to cover the care home costs, and due to the nature of dementia there is no way to know how long she will live for.  If she dies after 3 years the estate will be over the inheritance tax limit as there will no longer be the £175 extra allowed for the primary home.  Do the tax rules take into account that the house was sold to cover her long term care, or will the family have to pay IT as the estate is over £325k?

Flugelhorn

there is an exemption if the property was sold or individual downsized (from ageuk)

"f you leave your property to your children or your grandchildren (including adopted, foster or step-children), you may gain an additional tax-free allowance of £125,000. This amount will increase by £25,000 every April until it reaches £175,000 in April 2020. Any unused part of this amount can be passed on to a surviving partner.

This additional exemption will also be available where someone who has died sold their home or downsized on or after 8 July 2015.

The rules are complicated and you should seek professional advice."

Keep_pedalling

Although the downsizing rule would apply, if she inherited her husband’s entire estate (or was given a life interest in it) the RNRB will not need to be claimed as the transferable NRB from his estate gives her estate £650k of exemptions.

Not claiming either RNRB avoids having to do a full IHT return so where a transferable NRB exists it is better to use that than either RNRB.

RAS

As a widow, she is likely to have inherited her husband's allowance? And the value of house, up to £175k per spouse remains if sold to pay care home fees providing the value is passed to direct descendants. So potential £1m IHT allowance in this case.