7 year rule

[premier1]

my mother is giving us her house on the condition that i give my brother and sister a third each of the property value. my mother will then live with us and the house be mine. if my mother has to go in nursing home am i liable for the costs of her stay. or is there some other way round it. by the way the value of my mothers house is below the itf 

[Sludge]

If at death your mother's estate including the house is valued at more than �263000 then IHT is payable upon the whole value at the rate of 40%. However, relating to gifts the Revenue uses the following scale:
Years between gift & death    Percentage of tax payable
Up to 3 years                               100%
3 - 4 years                                      80%
4 - 5 years                                      60%
5 - 6 years                                      40%
6 - 7 years                                      20%
More than 7 years                             0

[Sludge]

I don't know what is up with Answerbank tonight but I trust that you can make sense of the above. If not, please say and I will try again. To continue, if your mother is taken into care the Local Authority will endeavour to recover the whole cost of such care. There is no time limit when considering whether deliberate deprivation of assets from an estate has taken place (ie whether during the lifetime of the individual or after death), and when a Local Authority decides that such has occurred it is then legally obliged to take steps to recover any money that it has paid out. A private residence will be brought into account (again during lifetime or after death) when a Local Authority is looking at deprivation of assets.
There is no way round either of the above.

[ChocClare]

What are you going to do with her house?  Are you going to live in it, or are you going to sell it?

If your mother needs to go into a nursing home, then social services will look at all her capital.  If she has capital apart from her house of �20,000+ then she will be self-funding.  If she has less than �20,000 then she will be entitled to help from social services.

This post won't fit into one, so see below...

[Sludge]

Now it has left some words out! After "deliberate deprivation of assets"  please insert "such as giving away the house".

[ChocClare]

If the house is still in her name or part of it is still in her name then that will also count as her capital.  However, if it is in your name, then that doesn't count as her capital when social services are assessing her.  Even if it is still in her name, if you are living there and are over 60 yourself, then it cannot count for social services' purposes.  I can be more precise about this, but I need to know what you're doing with the house!

If your mother has less than �12,000 apart from the house, and is assessed as needing residential or nursing care, then it works as follows.  Social services will say "our set rate for residential care is (say) �350 per week."  They then look at your mother's income.  Say her total income is �100 per week (including pension, private pension and any annuities).  They let her keep �18.50 per week "pocket money" and ask her to pay the rest towards her fees.  She pays �81.50 and they pay �268.50 - together equalling �350.  If she has between �12k and �20k then they add �1 to her total income for every �250 of savings she has - so she has to pay a bit more.  The idea is that once you get down to �12k you no longer have to make any further payments from your capital, just from your income.  HOWEVER!  Residential homes may well charge more than �350 per week or whatever the social services rate is and the VAST MAJORITY ask the family to top up the fees paid by social services.  This is regardless of whether you have her house or not and would apply to her next of kin.  So you and your siblings would be expected to top up her fees.  If you won't or can't, then she'll have to go into a home which accepts social services funding without any top-up.

Sludge obviously knows more about the tax liability than I do, so I can't comment on that.

[ChocClare]

Sorry about this, a long answer...

However, your other possibility is this: if your mother owns her home when she goes into care and has less than �20,000 additional capital, she can ask for a 12 week disregard.  Social services will pay fees (or part of the fees) for her for 12 weeks to enable her to have time to sell her house.  This money does not have to be paid back (you can only do it once!).  She can also ask for a deferred payment: this is when social services look at the value of the house and "lend" the fees for her time in a residential home.  This is an interest-free loan repayable on her death.  So in other words, you sell the house on her death to repay the social services.  Obviously you hope that the house will have gone up in value enough to a) cover the costs of her fees and b) have something left over.  Renting out the house while she is in a residential home could also defray the costs.

[ChocClare]

Sorry, I hit submit and didn't mean to!  Hope some of this is useful even if it's slightly different from your original question.  Hope your mum continues fit and well!

[Bangkok]

Sludge, sorry to be dim, but are you saying that if the estate (including the house) was worth 262,000 then no tax would be payable, but if it was worth 264,000, then 105,600 tax would be payable rather than 400??  You say it is on the whole value.

[Sludge]

Yes, Bangkok. Up to �263000 no tax is payable, but it is not a nil band. Above �263000 tax at 40% is levied on the whole blessed lot. Worse still, this tax must be paid before probate can be granted. Many families do not have the necessary spare cash to do this, obliging them to take out expensive loans to pay the tax to get the estate wound up.

[Miss Zippy]

Bangkok -  IHT is not payable on the first �263k of an estate. Anything over �263k is taxed at 40%.

[Sludge]

Just to comment upon ChocClare's excellent contribution. The first paragraph of her second posting must be read against my statement regarding deprivation of assets. If at any time, there is no time limit, the Local Authority can prove on the balance of probabilities that the house was gifted for the purpose of evading payment to them then they can commence court proceedings to recover its value for themselves. Whatever crafty game has been played will be set aside by the court as a "trick".

[Sludge]

No, that is not correct. The exact Revenue wording is "The value of estates above the �263000 threshold is taxed at 40%".

[Miss Zippy]

Sludge, I'm guessing you work for the Inland Revenue as its personnel are forever getting their calculation of taxes wrong in my experience!  Only anything above �263k is taxed at 40%.

[smudge]

Sounds familiar Miss Zippy - when I was at work, I was forever informing Inland Revenue personnel of their errors. They used to thank me for it too!

[smudge]

premier1 - IMHO, it might be in your best interests to seek outside professional advice on this one!

[ChocClare]

I have to say that, when my mother-in-law died, she left more than �263k and we were taxed at 40% only on the amount above that threshold, not on the whole amount.

[Sludge]

Correction. My speciality is UK and International Contract and Land Law with general Civil Law, not tax. I have inadvertantly mis-stated the UK IHT situation - the first �263000 is in fact a nil band and is deducted from an estate calculation so that everything above �263000 is subject to 40% tax. Thanks everyone.

[smudge]

Which is why one should 'not' give advice on things they are 'not' sure about.

As the saying goes: If in doubt leave it out.