Mother gifts family home - in return for having rent paid on different apartment

sheramber

I can see a similarity to this example.

Mother gifts the house to son on condition of rent being paid  being ' reservation of the benefit to the donor by contract or otherwise.'

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14334

Example 3

Aarif makes a gift of shares to Basheera, it being part of the package that Basheera would appoint Aarif to the Board of Directors, a salaried position entitling him to a company car and other fringe benefits.

This would be regarded as the reservation of a benefit to the donor “by contract or otherwise”.

Bookworm105

AROON1 said:

Bookworm105 - seeing as my mother wont benefit directly from the house (as she wont be living in it) - how can it be classed as a gift with reservation? 

because, as written by you, it is a gift conditional upon her being able to live rent free for the rest of her life by virtue of you paying her rent for her, which she would otherwise have funded from the sale proceeds of her house had she not gifted it instead.

xylophone

You could just rent the family home from your mother.

She could use the rental income to rent the one bedroom flat she seems to hanker for.

If the flat eventually proves unsuitable, she can return to her own home and live with you or you can all make other arrangements as required?

AROON1

Thanks Xylophone. That is a possibility although i guess that might involve her paying income tax on the rental income. I think if i just paid for her rent directly it would be classed as a gift not income?

caprikid1

"For the purpose of this thread, whilst I note there are understandibly concerns around deprivation of assets (she is in good health so i dont thnk that would apply),"

Don't forget there is no time limit on deprivation of assets. So it will always apply unless she keeps our sister 0.5M till death and uses that to fund care.

AROON1

I don't know enough about the mechanics of deprivation of assets, but it would strike me as odd that the authorities would class a single elderly lady downsizing from a £1.2m five bedroom house to something smaller (and more suitable) intentionally depriving herself of assets to avoid care fees? surely it would be more reasonable to expect someone in that scenario to maybe have around £300-500k of assets (1 bed apartment plus some cash)?

Bookworm105

AROON1 said:

I don't know enough about the mechanics of deprivation of assets, but it would strike me as odd that the authorities would class a single elderly lady downsizing from a £1.2m five bedroom house to something smaller (and more suitable) intentionally depriving herself of assets to avoid care fees? surely it would be more reasonable to expect someone in that scenario to maybe have around £300-500k of assets (1 bed apartment plus some cash)?

deprivation of assets is often cited as a risk but only comes into play if the person then seeks financial assistance from the council. Given the apparent combined family wealth, it seems rather unlikely that your mother would end up in a council funded care home.

That said, your comment above ignores the fact that the asset has been transferred within the family and therefore she has indeed deprived herself of it since she does not have any money from it.  Nor has the family has "lost" the asset, rather the action taken looks like it was done purely to reduce mother's on paper wealth ("deprivation"). Every scenario proposed in this thread is about how money can be moved around on paper whilst still retaining it within the family and evading tax by doing so. Such obvious loopholes were addressed long ago 

AROON1

Hi Bookworm105 - that makes sense.  thank you.

GDB2222

Can I ask @AROON1 about your own situation? If your mother needs say £2-300k to buy her own flat (I'll come on to renting in a moment), could you afford that? She may also need some money to top up her pensions, so she has enough to live on. So, why doesn't she simply sell you her house at whatever figure she needs to move on?

I would not recommend that your mother starts renting. It's not a stable long term arrangement, and she might be asked to move out with little notice. Besides that, she might easily live another 20 years, and renting long term is more expensive than buying.

The maintenance of a flat is not too big a job, and you can help her with that. Insurance and maintenance of the building is all done by the block management. So, it's just the interior, and many landlords are not great at that.

elsien

AROON1 said:

I don't know enough about the mechanics of deprivation of assets, but it would strike me as odd that the authorities would class a single elderly lady downsizing from a £1.2m five bedroom house to something smaller (and more suitable) intentionally depriving herself of assets to avoid care fees? surely it would be more reasonable to expect someone in that scenario to maybe have around £300-500k of assets (1 bed apartment plus some cash)?

Don't forget as well that the financial assessment also applies to care for people living at home, not just in care homes. 
So the value of any property she is living in and which is in her name would be discounted as capital in the assessment.
With this level of assets it's unlikely to be an issue unless she needs 2/1 care at home for a prolonged period, but just for the sake of clarity it could raise questions as to where the rest of the downsizing money had gone.