Inheritance tax question

frodobaggins997

Hi all, I suspect advice would be required from an inheritance tax expert but I have a question and dont know if I can get advice here before going down that road.

My mother is now in a care home self funding and me and my brother have had to sell her property now to continue covering the care home fees. 

My question is if we were to pass the proceeds of her house sale into our accounts and then use that to pay her care home fees would inheritance tax be due on the amount passed or would we be able to claim a deduction for what we have paid for fees however long that goes on for? We have power of attorney and mum has severe dementia now with no knwoledge of managing her own finances or day to day life sadly. 

To be clear we would not be doing this in a way it would fall under deprivation of assets as she has a sizeable sum from her house sale that would be able to see her fees covered for multiple years and so I cannot forsee us ever needing to be in a position to have to claim for care home fees from local authority.

Just after some advice on what the position would be in this particular situation really.

p00hsticks

Welcome to the forum. 

If you have PoA you have to act in her best interests - moving her money into your own accounts would obviously not be seen by an outsider as doing that, unless you have a really good justification.

What is your reasoning behind wanting to do this - are you having problems using the PoA to set up account(s) in her name to hold the sale proceeds ? Or is the care home saying that funds cannot come from her own account ?

Having the money in her own account and paying the care home fees from that would be by far the simplest option if doable, and avoid any suggestion of any irregularity in dealing with her affairs. It would also make it far easier to establish what is in her estate on her death 

FYI, there is also a  'Death, Funerals and Probate' board on these forum.  
Deaths, funerals & probate — MoneySavingExpert Forum

Keep_pedalling

You need to keep her money totally separate from hers. Holding it in your names mean that you will be taxed on it not her, and if you died before she did it would cause major issues. 

Your post seems to suggest that the idea is to gift the money and then for you to meet her care costs, and that is way beyond your authority as her attorney.

Does her new worth actually put her estate in IHT territory? She has £500k of exemptions and if she is a widow it could be double that.

Brie

if you set up an account, accessible by both you and your brother but in your mom's name then either of you can be paying your mom's fees and any other bills.  

if you put the money in either your or your brother's account you can be accused of deprivation of funds even if that is not your intention.

frodobaggins997

Hi yes the problem we have is even with the POA we seem to struggle setting up direct debits etc for her care fees from her account. And also the money being in her account on the interest will push her into taxable bracket with associated tax return required and associated accountant fees etc. We have been through quite a rigmarole last time we tried to pay from her account for things where even with POA we were being asked to prove that she has lost ability to make her own decisions, which then turned into a nightmare of who could then make than decision, the GP refused to write a letter saying it was not in their remit, the old peoples mental health team also said the same so we were at a loss as to who would make a determination of loss of capacity, even though she is at the stage where she can hardly speak and does not know where she is now. It has all been a bit of a nightmare!

frodobaggins997

Im not sure if it is normal to have such trouble with institutions not taking our instructions even though we have the POA and as I say the determination of lack of capacity was a while different can of worms where no one would agree to take responsibility so that was where the idea came from certainly not from any wish to defraud or do anything untoward just FYI.

frodobaggins997

Oh and yes keep pedalling the estate is now a fair way over the IHT threshold as the house was the family home and was a large property.

Grumpy_chap

You need to keep your Mother's finances in separate accounts from your own.
This is for the "probity" reasons of acting properly in the interests of your Mother under PoA and to prevent other possible complications:

• You will become liable for income tax on any interest received instead of your Mother - that may be at a higher income tax rate
• You will be assessed as owning the funds in the event of claiming any means tested benefits
• You may experience relationship breakdown and partner try to take your Mother's money as marital asset
• You might pre-decease your mother

Keep_pedalling

frodobaggins997 said:

Oh and yes keep pedalling the estate is now a fair way over the IHT threshold as the house was the family home and was a large property.

It is now far too late to attempt any form of IHT mitigation other than spending her money on the best care you can get for her. You certainly cannot make any gifts other than carrying on following the same level of gifting she made when she still had capacity. 

The same applies to income tax the money is hers and any income it generates outside ISAs and premium bonds she needs to pay tax on, transferring it to accounts in your name would be tax evasion.

Keep_pedalling

frodobaggins997 said:

Im not sure if it is normal to have such trouble with institutions not taking our instructions even though we have the POA and as I say the determination of lack of capacity was a while different can of worms where no one would agree to take responsibility so that was where the idea came from certainly not from any wish to defraud or do anything untoward just FYI.

I never had any problem with my mother’s bank when she lost capacity. Does she have a LPA in place or the older EPA. If the former you should not have to provide proof of lack of mental capacity.   

OldMusicGuy

frodobaggins997 said:

Hi yes the problem we have is even with the POA we seem to struggle setting up direct debits etc for her care fees from her account. 

So why not just make direct transfers from her account to pay all the bills? That's what we did for my FiL. Get her set up for online banking if she isn't already and you can run the account for her, especially as you have LPA.