Peppercorn Sale

[Myriad2112]

My elderly mother is in the early stages of dementure and I am concerned that if and when it gets worse that social services will forcer her to sell her house to pay for her care. I have been thinking about selling my house and moving in with her but someone has suggested that instead she could sell me her house (which has no mortgage) for a small amount of money to avoid this happening, allowing me to both keep my family home in place and safegaurd hers at the same time. My wife seems to think that some kind of inhertance tax law stopping me from doing this. Can anyone help me with this? Thanks.

[scooping]

1. If your home is your only property OK. No capital gains.
2. Depends whether mother's home is above the inheritance tax threshold (think it's about 350k).
3. Why buy her place? She can leave it to you and your siblings.
4. Not a solicitor but look into 'life interest'. You have a right to part of the property until your death or until it is sold.
5. Equity release? If she's got no assets what can they do?
These are just thoughts, though been through similar. There are loads of websites that can help.

[Buenchico]

>>>My wife seems to think that some kind of inhertance tax law stopping me from doing this

There are a lot of misunderstandings about Inheritance Tax ('IHT'). IHT is completely irrelevant if, when your mother passes away the value of her estate is less than £325,000. However, when calculating the value of her estate, any gift made within the past 7 years is included in the amount. If your mother, say, sold you a house worth £200,000 for just £1,000 then the tax man would treat that as a gift of £199,000, which would have to be included in the assessment of her estate. (Assuming that your mother hadn't made any other gifts in that tax year, or the previous one, the actual figure used would only be £193,000 as you can make a gift of up to £3000 per year tax free and you can carry over the allowance from one year to the next).

Further, if your father passed away leaving the house (or his share of it) solely to your mother, then she also gets his £325,000 allowance, so there would be no IHT to pay if the total value of her estate (including any 'gifts' of the form outlined above) came to less than £625,000.

Note as well though that any 'gift with reservation' is exempt from the '7 year rule' that I've mentioned above. So if your mother 'gave' you her house (by way of a cheap sale) and continued to live in it [while not paying you the market rent for doing so] then the value of that gift [minus £6,000, as explained above] would always be included in the assessment of her estate, even if she lived for more than 7 years after making it.

See here for a full explanation of IHT:
http://www.hmrc.gov.uk/inheritancetax/

All of the foregoing relates ONLY to IHT. There are other rules in place relating to care fees, which mean that your mother's house can still be used to fund her care costs, even after she's (effectively) given it to you.

This link, relating to planned changes in the system, may also be of interest to you:
https://www.gov.uk/government/news/new-fairer-capped-funding-system-to-help-everyone-plan-for-the-cost-of-care

[woofgang]

essentially myriad, social services can't force a house sale if the money to pay for care can come from elsewhere. what they won't allow is for people to keep assets and be funded out of the public purse.

[woofgang]

Chris that's an interesting government link. nowhere in it is there a guarantee that the house need not be sold to pay for care costs, only that it can be deferred for the lifetime of the person needing the care....i guess the wilful disinvestment of assets prevention will remain too.

[Myriad2112]

Thank you so much Scooping, Woofgang and particularly for the 'easy to understand' answers and useful links. much appreciated.

[Peter Pedant]

You have had some very clear answers about IHT
but not really if it is lawful to sell a house at a peppercorn price to avoid care fees.

I was under the impression that it was ( unlawful) but the govt were looking at moves to ease the rules so that one didnt have to ( sell a house to pay for fees )
which inn short is a kinda clear 'not sure'

if you goggle 'selling a house to avoid care fees '
you can work your way thro the hits

http://www.nidirect.gov.uk/your-home-your-assets-and-your-care-home-fees

is very clear - but it is only Northern Ireland.

I think your idea is an obvious loser but you need to work your way thro the internet hits to reassure yourself

[woofgang]

PP the governments new ideas plan only to protect the house for the life of the person. Once they die then the care fees become due and must be paid somehow, usually its expected from the estate, from the sale of the protected house. If the house is not available to sell or the equity in the house doesn't cover it its not clear who will be responsible. What seems clear by omission is that there is no intention to change the rules on wilful divestment, meaning that if the house is given away, sold for a below value price or otherwise disposed of in a way that reduces the value of the person's estate, the Local authority will still be able to take action.
IIRC The " wilful divestment rules" are just that, they are rules not laws. If you accept financial or service assistance from a local authority, you agree to the T and C of that authority. Part of that is agreeing to the wilful divestment thing where if resources are disposed of with the intent to avoid paying care home or other fees that would have otherwise been payable, (and breathe) the Local authority can make the assessment as though the resources had not been disposed of and can go after the receivers of the resource for repayment.

In other words i doubt if it will work.....

[cassa333]

I have always understood it to be that if someone disposses of an asset and then needs care fees paid that asset is considered to still be in their possession.

This issue isn't so much aqbout IHT but possible care fees AND because she is in the early stages of dementia you have to look VERY closely at all the implications of coorscion and dispossing of assets etc etc.

[woofgang]

it depends cassa. It about intent and reasonability. If you have never had a day's illness in your life, downsize your house and give some of the released money away to your family, that could be viewed as a reasonable thing to do. If, a year later you had a stroke and needed care, the LA might try to pursue you for the money but it would be arguable that you could not have foreseen the stroke and had behaved in a reasonable way.
http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true

[cassa333]

Woofgang, the OP said mother has early onset dementia. Therefore care may be needed at some point and they could then persue for payment even if assets have been disposed of.

They can also put a charging order on the house so that when it is eventually sold they get their money back.

[woofgang]

yes cassa, hence my previous posts. I was pointing out that the sweeping statement made in your post.

"I have always understood it to be that if someone disposses of an asset and then needs care fees paid that asset is considered to still be in their possession."

is not always the case.

[EDDIE51]

Would this work?
Myriad sells her house and buys a half share in her Mums house (at market rates) then moves in with her mum as a joint owner. If care home fees are needed then the Mum only owns half a house with the co owner living there for the rest of her life.
Value of the house is then effctivly nill. OK Mum would have the cash from half the house ,but a lot of that could be used for improvments to make the house easier for an elderly person to live in and a few holidays.
i have heard of similar schemes working. I suppose a lot depends on Mums age and the value of the house.

[black_cat51]

and whether she wants to move in with the mum!
There is no time limit when local authorities are looking at disposal of assets to avoid care home fees - even if she doesn't need care for another 20 years, if she disposed of her house to avoid care home fees, the LA can still take it into account
I don't really get what the big problem is with selling a house to pay for care home fees (in general) and in fact there are benefits to it. It's not like if she went in a care home she would need the house anymore - the care home would be her residence

[woofgang]

Eddie the catch is that Myriad's Mum already has dementia and therefore it is "foreseeable" that she might need care in the near if not immediate future.
... black cat, I think that 20 years is a bit extreme. i think that any claim by a LA on the basis of actions taken 20 years previously could successfully be appealed as it might be argued that buying half of the parent's house and moving in 20 years previously was intended to keep the parent OUT of care and not to avoid paying for it...also lets remember that we are here to give objective advice and not personal moral opinion!

[black_cat51]

hello, where have i given a moral opinion? please don't tell me off!

[woofgang]

" don't really get what the big problem is with selling a house to pay for care home fees (in general) and in fact there are benefits to it. It's not like if she went in a care home she would need the house anymore - the care home would be her residence"

that's neither advice nor objective.

[Buenchico]

A relevant link:
http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf

[woofgang]

lol Chris, i posted that at 20.05 :)

[EDDIE51]

If myriad were to state, if asked, that the reason for her moving in with her Mother was to care for her herself and thus avoid if at all possible the need to move mum into care would that not be a valid reason?
( If Mum got to the point where even having her daughter living with her was not enough.)

[woofgang]

eddie i think that would depend on the elapsed time between moving in and needing care, the degree of dementia and thus the prognosis, and how much daughter did for mum before "giving up" i reckon the LA would try under the OP's circs