Giving assets away and living on pension benefit

moneybelle

Someone I know is recently retired , and has about £700,000 in assets that she intends to give to her children to avoid inheritance tax later(7 year rule). I think she is planning to live on a small works pension, state pension or some sort of benefit that she is not entitled to at the moment as her income (from rent/interest) is too high. SOrry to be so vague as I don't know all the details.

It may be her intention also to qualify for council retirment accomodation.

Will she actually be doing anything wrong/illegal by divesting herself of her assets in this way, so that she can quailfy for greater benefits and council housing?

calleyw

Think you need to get your friend to read this

http://www.taxationweb.co.uk/tei/article.php?id=161

http://www.youretirementstrategies.co.uk/site/care.php

Think you will find it will be classed as Deliberate Deprivation of Assets.

Your friend needs to get proper advice about what they intended to do (sorry can get rid of bold.)

Yours


Calley

moneybelle

Calley: As the person in question is early 60's, the need for care to be considered will be probably well into the future. Although the moral implication is still there, of course.

moneybelle

margaretclare wrote: »

Yes.

This is not only morally wrong, it's illegal, it's fraud, in other words.

It doesn't surprise me, however, that she's come up with this idea, because from what one hears, it's often the subject of what might be termed 'pub talk'.

Margaret

I feel it is morally wrong also.
I wonder if anyone can be more specific where the wrong is in law

EdInvestor

moneybelle wrote: »

Will she actually be doing anything wrong/illegal by divesting herself of her assets in this way, so that she can quailfy for greater benefits and council housing?

Yes of course. It's not allowed.

Deprivation of capital and means tested benefits:

http://www.newcastle.gov.uk/core.nsf/a/wr_notionali+c

Such is the anger about benefit cheats these days that sooner or later people who did this will get reported to the authorities, who will also check the will when the person on benefits dies and then claw the money back from the estate if appropriate.

Giving away assets may also have tax implications for those receiving the gifts.

moneybelle

margaretclare wrote: »

Let me get this straight, moneybelle. Your friend is only recently retired - retired at 60, did she? She has a substantial amount of assets, £700,000 which she's planning to give away to her children? She's then planning to live on a small works pension plus, presumably, basic state retirement pension? It sounds from what you say that she hopes to qualify for pension credit on top of her state retirement, which BTW is going to be £90.70 a week from April (SRP that is, don't know what it will be made up to with pension credit).

The moment she applies for pension credit, means-testing kicks in. Anything that she doesn't reveal, if discovered later, means that the DWP can come down on her like the proverbial ton of bricks. It's all set out here: http://www.thepensionservice.gov.uk/pensioncredit/entitled.asp

Defrauding the DWP by claiming means-tested benefits that she's not entitled to is as bad as defrauding the tax authorities - they have very wide powers and at the very least, could require it all to be paid back, if claimed under false pretences.

I must also say, IMHO, this is a very short-sighted policy on your friend's part. She's relatively young and has another 2 or 3 decades of life expectancy. Living on means-tested benefits for that length of time is bad enough if you have no alternative, but to deliberately CHOOSE it? How does your friend know what her needs may be in all that time, or what she may be able to use money for? Spending money on making your life more comfortable, a more manageable use-friendly home, health needs, holidays, all those kinds of things wouldn't be questioned and are very understandable.

We're in our early 70s and are STILL saving, just because we don't know what our needs may be in years to come, and having spare money gives you CHOICE above all. Does your friend want to go cap-in-hand to the children whenever the fridge breaks down or otherwise needs some money which means-tested benefits don't allow for?

HTH

Margaret

I share your concerns Margaret. I just wanted to get my facts straight before I make a few tactful suggestions.
The replies I have received have strengthened my concern.

Thanks to all who have contributed.

Pinzy

I've got someone in a similar situation: already on benefits, about to hit retirement age, in the process of inheriting £60k.

I do understand it from the government's point of view - you've got the money, you shouldn't be paying benefits. The inheritee in question here just wants to give the money to her grown-up kids, has suffered depression for many years, and is quite scared about the possible huge change.

I know she can gift the money to one (all) of the kids, and they won't get taxed on it (though there may be an issue if she dies within 7 years). She just needs to write a letter saying it was a gift in case HMRC investigate their finances and wonder where the money came from. So receiving the money wouldn't be an issue. Giving it away is.

Pension Credit doesn't look at savings until their over £6k. As Pension Credit is means tested though she could still fall under "deliberate deprivation" and be out of Pension Credit, + Council Tax and Housing benefits.

What they want is for the pensioner to have the money there for when she really needs it. To just carry on living the way she is at the mo, with the money taking place of the benefits - the money will be gone in less than 8 years. Then she's that much older, and still has nothing. Whether she gifts it, has a spending spree, or buys things such as jewellery for investment purposes, it all comes under "deliberate deprivation".

It's a bit poo really. In one way, nice to have the money. On the other, you're no better off at all, but the government is.

seven-day-weekend

But look at it another way Pinzy. Many people have saved all their lives and accumulated say, over the years, £25k. They too would like to keep it for when they really need it.

But they have never qualified for means-tested benefits because they've always had this money. When they retire, they still won't be entitled to any means-tested benefits such as Pension Credit or Council Tax Benefit because they've got the money.

So if they do not have enough retirement income, they will have to use their savings to live on until it gets to the threshold where they are eligible for means-tested benefits.

Why should these people have to use their savings and your friend not expect to have to use her inheritance? They will end up with 'nothing' as well, even though they have saved hard all their lives.

Although in actual fact neither they nor your friend will have 'nothing' as you are allowed to keep £6000 without it affecting means-tested benefits. So in their case they will have £6k left out of £25k. Your friend will have £6k from £0 (no savings).

She will be better off than she was before. They will be worse off.

Ian_W

Pinzy wrote: »

It's a bit poo really. In one way, nice to have the money. On the other, you're no better off at all, but the government is.

I disagree. I pay taxes, as I'm sure you do, and have no objection [wouldn't matter if I had though!] to them being used to pay pension credits to those on very low retirement income. That is part of living in a reasonably civilised society - which isn't the case in many parts of the world.

I don't see why I, or anyone else, should pay tax for pension credits to someone with £60K of their own money which they can and should use to support themselves rather than give it to their kids. There are many folk working hard, paying taxes and not receiving any state benefits who don't have £60K in the bank - why should they subsidise your friend - or rather her kids?

The only money the government has is what it takes from people in tax.

craig1000

i sypathise with the situations of the people who have some small savings who have worked all their lives and payed their taxes. people who have been sensible to give themselves a littel extra in retirement but who are then made to spend it until not alot left, i.e 6 grand yet people who have not been sensible in life get to claim housing benefit and pensions alot sooner. the whole system stinks to me, whilst i dont agree with deliberate deprivation of assets when talking about 100,000s of pounds worth as with them ammounts people are obviousley very comortable. i just feel that the 6 grand threshold should be higher, i feel if you have worked hard and payed your taxes all your life you should be able to claim having up to 50,000 in savings, after that you should be made to spend it first.
this is just my personal opinion and if you dont agree fair enough but dont slag it off

julieq

Pinzy wrote: »

I've got someone in a similar situation: already on benefits, about to hit retirement age, in the process of inheriting £60k.

I do understand it from the government's point of view - you've got the money, you shouldn't be paying benefits. The inheritee in question here just wants to give the money to her grown-up kids, has suffered depression for many years, and is quite scared about the possible huge change.

I know she can gift the money to one (all) of the kids, and they won't get taxed on it (though there may be an issue if she dies within 7 years). She just needs to write a letter saying it was a gift in case HMRC investigate their finances and wonder where the money came from. So receiving the money wouldn't be an issue. Giving it away is.

Pension Credit doesn't look at savings until their over £6k. As Pension Credit is means tested though she could still fall under "deliberate deprivation" and be out of Pension Credit, + Council Tax and Housing benefits.

What they want is for the pensioner to have the money there for when she really needs it. To just carry on living the way she is at the mo, with the money taking place of the benefits - the money will be gone in less than 8 years. Then she's that much older, and still has nothing. Whether she gifts it, has a spending spree, or buys things such as jewellery for investment purposes, it all comes under "deliberate deprivation".

It's a bit poo really. In one way, nice to have the money. On the other, you're no better off at all, but the government is.

She can probably have a deed of variation drawn up so her children are the beneficiaries, not her. This counts as an inheritance, not a gift,