Understanding EPA, inheritance and care home rules

[SpagBog]

Hi all. Apologies for the long post

I have EPA for my 85yo father who is presently in hospital after seizures and dementia related issues. He’s recovering to some new baseline and may need care full-time.

Keeping this matter of fact, I’m his only child and will inherent his estate apart from his share of the house with his wife, my step mother. My mother died 27y ago. I will inherent a share of the house in my stepmother’s will. He has £150k which I have invested in diversified low risk accumulation and growth cash / s&s isas and good old premium bonds. The estate does not trip IHT threshold. Besides the state pension, he receives a modest monthly income from an employer’’ DB scheme.

As I understand it I can distribute £3k per year to me (which has been done for several years) with unlimited gifts of £250 a day. I’m aware of the other allowances of marriage gifts (can’t use) and surplus living needs (think this will be too difficult to audit trail). A law firm are the executors of his will.

If he doesn’t qualify for NHS continuing healthcare, and because his estate is greater than £28k, am I correct in thinking the only options open to protect the cash are to make use of the annual £3k allowance and the £250 gifting. I have a baby daughter due in April (first and last!) so I expect that would be a legitimate use of gifts.

Thanks in advance.

[TownIdiot]

Are you sure about the situation regarding the will?

And the rules regarding giving money away are interpreted differently in respect of local authority fees and inheritance tax

Basically you can't just "gift" your way below the threshold, even if these gifts are allowable under the IHT rules

[toastyhamster]

TownIdiot said:

Are you sure about the situation regarding the will?

And the rules regarding giving money away are interpreted differently in respect of local authority fees and inheritance tax

Basically you can't just "gift" your way below the threshold, even if these gifts are allowable under the IHT rules

I was about to say the same thing, I'm in a similar position, albeit my Dad is still at home. I thought I'd read up quite well on this and I've been quite conservative with his money, mainly only monetary gifts to his two grand sons and nothing to me. He's only 20k or so over the limit for local authority contributions to his care, and the house passed to me when Mum died over 10 years ago, so as a percentage it's relatively small.

3k a year might seem reasonable to some but £250 a day unlimited must surely be seen as taking the p*ss?

[SpagBog]

I’m certain of his and my step mother’s will. The combined value of the estate, house and other assets is well below joint IHT limit and my father’s estate is below the single IHT limit. As a family we are quite open about finances.

The £250 a day limit was bit of a guess since I couldn’t see in any advice or rules where it stipulates how often it was allowed. There didn’t seem to be any attempt at a link to life events, birthday’s or anniversary’s. With a baby on the way I thought gifts could be a legitimate expenditure as a whole or contribution to big ticket items.

[TownIdiot]

What does his wife think?
Doesn't she need the money herself?

[C69]

SpagBog said:

As I understand it I can distribute £3k per year to me (which has been done for several years) with unlimited gifts of £250 a day.

My understanding is that in each tax year, you can gift a total of £3,000 to anyone. You can also make small gifts (up to £250 per person), but those recipients can't have previously benefited from your annual £3,000 exemption.

Obviously I'm happy to be corrected on this. However, I don't think that "unlimited gifts of £250 per day" is quite right!

[TownIdiot]

C69 said:

My understanding is that in each tax year, you can gift a total of £3,000 to anyone. You can also make small gifts (up to £250 per person), but those recipients can't have previously benefited from your annual £3,000 exemption.

Obviously I'm happy to be corrected on this. However, I don't think that "unlimited gifts of £250 per day" is quite right!

All this is for I heritance tax calculations

You can give people whatever you want without either paying tax unless you snuff it

I'd have thought these decisions should be being made by the wife at this stage, if she is capable.

[SpagBog]

TownIdiot said:

All this is for I heritance tax calculations

You can give people whatever you want without either paying tax unless you snuff it

I'd have thought these decisions should be being made by the wife at this stage, if she is capable.

This is the uncertainty I have. I haven’t found anything to say that you can’t give away everything if it’s below the IHT threshold. The 7year rule and diminishing liabilities only applies when the estate, including the value of previous gifts outside other allowances, is above the IHT threshold, as I understand it currently.

ATM I’m not assuming I can give away everything (although I’m not sure why I can’t). I’m cautiously maintaining to the noted £3k pa and £250 (daily??) limits unless someone can kindly point me to a tax law reference.

His wife, my stepmother, has joint and severally EPA and we make decisions fully informed. She’s quite astute even at her age.

[TownIdiot]

SpagBog said:

This is the uncertainty I have. I haven’t found anything to say that you can’t give away everything if it’s below the IHT threshold. The 7year rule and diminishing liabilities only applies when the estate, including the value of previous gifts outside other allowances, is above the IHT threshold, as I understand it currently.

ATM I’m not assuming I can give away everything (although I’m not sure why I can’t). I’m cautiously maintaining to the noted £3k pa and £250 (daily??) limits unless someone can kindly point me to a tax law reference.

His wife, my stepmother, has joint and severally EPA and we make decisions fully informed. She’s quite astute even at her age.

For the purposes of care home fees there is no tax law reference.
The 3k pa gift allowance is for inheritance tax.
I haven't heard of the 250 a day gift allowance as that is over 60k a year

The local authority will use a different set of measures. They will ask where the 125k has gone and they will immediately see it is a ruse to avoid paying the fees.

So you *can* give all the cash away with no tax implications as it's below IHT thresholds, but the best that will achieve is the local authority putting a charge on the property.

Probably best to have a Google of "deprivation of assets" in respect of local authority fees. It's totally different to IHT and isn't black and white

[SpagBog]

Thanks for the deprivation of assets tip. That explains it well.

The £250 / small gift allowance on the government website quotes:

Small gift allowance
You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.

Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax

—-

I initially read that as “as many gifts at £250”. Perhaps it’s supposed to mean a total £250 per person. But then shouldn’t then say an gf receiving an expensive Valentines gift have to declare it, technically.

As for birthday and Christmas, if the pension income was £1000 in December then a gift of £1000 could be given within the rules

[TownIdiot]

SpagBog said:

As for birthday and Christmas, if the pension income was £1000 in December then a gift of £1000 could be given within the rules

That would presume the person has zero costs.

And again it's irrelevant from a deprivation of assets view point

[Sheepshanks]

SpagBog said:

Perhaps it’s supposed to mean a total £250 per person. But then shouldn’t then say an gf receiving an expensive Valentines gift have to declare it, technically.

Yes, it is per person. And they can’t have had any other gifts from the same giver.

The recipient doesn’t declare anything, the giver is supposed to keep records. The recipient is liable to pay any IHT that becomes due but normally the giver’s estate would pay it.

[AndyAudi]

The estate does not trip IHT thresholds so there’s no sense getting excited about IHT rules & restrictions.

Deprivation of assets is what you’ll fall foul of, if you want to pass on money so the local authority pays.

With my local authority there’s forms to fill in declaring assets & a mandate for you to sign to allow them to review information with your bank directly (rather than asking you to provide copy statements)

I’m guessing if they know you are giving away £3k a year that could’ve been foreseen to be used for carefees, they’ll lower value they’ll let you keep.

[popeyewhite]

SpagBog said:

Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax

You can give whatever you want from regular income as long as you're living off it as well. Even if you're not and you're well enough off to be living off savings as long as payments from income are regular and follow a 'reasonably' established pattern you should be OK.

[Armitage.Shanks]

You're in a pickle if your aim is to 'get rid' of the assets to avoid car home fees. As others have said this is Depravation of Assets and the LA are now all over this like a tramp on a chip! The value of the house is ignored given their is a surviving spouse but savings etc are in the mix and will be used to fund care. It doesn't sound like the funds are in joint names where only 50% would be considered.

I will be very surprised if your father's condition entitles him to fully funded NHS care. Dementia in some cases can be funded by the NHS but that usually involves a case where the person is sectioned under the mental health act and is not suitable for release. Happened to my father in law where he got fully funded state care but even then the LA were 'very keen' for a contribution to the costs and went down the value of the estate etc. They hit a brick wall when they found out he didn't own any property (I bought the house 10yrs earlier so they could release the equity on their own house and live a comfortable lifestyle) and most of the savings were in MIL's sole name so he was under the threshold. Quite rightly they took his private and state pension.

What I've learnt from all this as you get older you either resign yourself to the fact your savings/investments will provide you with a very nice care home, or you spend it/give it away whilst still able and hope the son/daughter you've given the money to is invested so that you may call upon it if needed whilst you're in a state run home.

Let's not forget on 'gifting' that you can give as much money away as you want, but then the 7yr IHT rule applies. It's unofortunate none of us have that planning foresight.

[Edible Roadkill]

Yup not much you can do outside of the 7yr rule asides £3k pa gifting without raising questions / becoming liable to pay yourself.

[SpagBog]

Thanks for all the advice. I was looking to understand the limit of what is legally allowable and the accepted experience which I think I have now.

One Google result gave various categories of deprivation of assets

1. Gifting a lump sum of money to a family member or friend
2. Transferring property into someone else’s name
3. Selling a property to someone for less than it is worth
4. Buying or gifting expensive items
5. Suddenly spending unusually large amounts of money
6. Gambling
7. Putting money into a trust

My interpretation is that if gifts started being made while someone is in hospital such as car, boat, jewellery or even a new bathroom then that would trip these rules. However, £3k pa is typical estate planning and in this case usual behaviour, while a crib would be a reasonable gift from a grand parent. It means only a pretty insignificant amount can be gifted away.

As for my father’s health he’s started a course of 2-3 months of cortical steroid medication (IV now) to treat the brain injury and is bedridden requiring Level2 care and puréed food. He’s been in hospital over a month now with a few more weeks expected before a discharge plan is made. Talking is quite limited to the same 2 or 3 confused stories. He still recognises me but hallucinates other objects.

[Jules Sunley]

IFA here and I'll keep it brief.

As others have said, the 3k pa and 250 small gifts (which is one person per year, just not limited to how many persons) are both for IHT purposes.

As others have also said, the issue you have is deprivation of assets for local authority care assessment and not IHT.

Either way though, you CANNOT make decisions for someone else under a Power of Attorney for gifting. You can continue a pattern that was in force before they lost capacity (ie if they gave away the 3k pa amount before you could reasonably continue this) but you can't start anything new.

If capacity has been lost and power of attorney is in force then 'getting rid of' any extra assets is not an option as you are too late.

Not what you will want to hear I appreciate, but factually correct.

[SpagBog]

Thanks Jules, for the summary

[Jules Sunley]

SpagBog said:

Thanks Jules, for the summary

Welcome.