When does subsiding a family member become a gift for IHT purposes

poseidon1

An exemption not frequently discussed are gifts for family maintenance under s.11 IHTA 1984 - see gift number 6 in the article below -

https://www.blakemorgan.co.uk/seven-ways-in-which-to-minimise-your-inheritance-tax-bill/

The receiving relative needs to be considered a dependant relation of the donor.

However the outcome in the seminal case of Mckelvey v HMRC ( 2008) mentioned in the article, where the donor's gift of substantial capital assets to support the relative was found to be a qualifying Section 11 (3 ) exempt gift, seems to provide scope to encompass the kind of regular 'maintainance' regime now in question.

Obviously it is an exemption the executors would have to claim based on whatever records are available to support the case and they can expect HMRC to scrutinise carefully the rationale behind the claim , but clearly not an exemption to be overlooked in this kind of circumstance since it sidesteps having to meet both the criteria of the gifts out of excess income exemption and the 7 year survival condition for capital gifts.

Dead_keen

You can read about HMRC's view of s11(3) in the OP's type of situation here (and what a dependent relative is on the next page). As @poseidon1 suggests, this exemption can cover reasonable care costs of 'care or maintenance' of close family members. Paying the care agency directly is fine for this exemption and probably makes it more obvious that it applies (but it could be paid to the relative).

born_again

https://forums.moneysavingexpert.com/discussion/6678996/when-does-subsiding-a-family-member-become-a-gift-for-iht-purposes

If they are paying the care agency directly, it is their own spend/bills. Not a gift surely?

silvercar

https://forums.moneysavingexpert.com/discussion/comment/82094588#Comment_82094588

That’s not strictly true. I know of 2 cases where sadly a parent died while their offspring were in education. They were able to gift, shortly before death, a large sum to provide for the future education of their children. In one case they were divorced, so it wouldn’t have been possible to leave to the spouse.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82094784#Comment_82094784

I think the actual route of the payments would not be relevant.

For example if you gave somebody a free holiday, but paid for the flights and hotel directly, it is still a gift.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82094764#Comment_82094764

Thanks to you and @poseidon1 for this info, it was exactly what I was looking for.

UKTaxHelper

There's a separate route that tends to get missed in these threads. Payments to maintain a relative who can't look after themselves because of old age or infirmity aren't treated as a gift in the first place, so the seven year rule doesn't come into it and it doesn't matter whether the money came out of income or capital. Care costs that social services won't fund is close to the textbook example of it.

sherlock228

you say family member but the technical term is "dependent relative"

IHTM04178 - Dispositions for the maintenance of the transferor’s family: meaning of a dependent relative - HMRC internal manual - GOV.UK

sherlock228

https://forums.moneysavingexpert.com/discussion/comment/82094794#Comment_82094794

yes, HMRC deals with parent providing for minor child's education as a "not transfer of value"

IHTM04151 - Dispositions that are not transfers of value: introduction - HMRC internal manual - GOV.UK

Albermarle

I wonder what the position would be if a person ( who would be potentially liable for IHT), partly or fully paid care home costs for an elderly relative with little/no assets.

The complication here would be that the local authority would normally pay for such a person, but the private payments could mean an upgrade of the quality of accommodation/care.

Also the size of the payments would be quite substantial, especially if they covered the full amount rather than a top up of LA funding ( if that was possible).