Aside from the myriad problems with gifting etc and the fact you need to see a solicitor stat, raw materials and building work is a lot more expensive than when this plot was started, and to be honest, £47k of money you've never had to know mum is safe and well cared for, while you potentially get £100k you didn't have before? I think most people here would bite your sister's arm off for this deal!
Money causing problems
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Aside from the myriad problems with gifting etc and the fact you need to see a solicitor stat, raw materials and building work is a lot more expensive than when this plot was started, and to be honest, £47k of money you've never had to know mum is safe and well cared for, while you potentially get £100k you didn't have before? I think most people here would bite your sister's arm off for this deal!
Abs no expert on this but I believe whether your Mum has capacity or not I'm pretty sure that she can't 'gift' that much money to either you or your sister. There is an annual limit and that's if you don't pass away within 7yrs of gifting it.
I think pooling monies to purchase property is different, but still potentially very tricky and legal rights need to be firmly tied up, ie; what happens if your sister and her husband separate at some point, what rights does you mother have for her percentage of the property which she will own with them, as you rightly point out she will have made an investment in their property.
You have to approach these things very carefully and rightly so, the laws are in place to protect the vulnerable. I think better to worry about your Mum and her money first before you worry about getting what you think is rightly yours - sorry I don't mean for that to sound harsh....
I think pooling monies to purchase property is different, but still potentially very tricky and legal rights need to be firmly tied up, ie; what happens if your sister and her husband separate at some point, what rights does you mother have for her percentage of the property which she will own with them, as you rightly point out she will have made an investment in their property.
You have to approach these things very carefully and rightly so, the laws are in place to protect the vulnerable. I think better to worry about your Mum and her money first before you worry about getting what you think is rightly yours - sorry I don't mean for that to sound harsh....
Oh I don't know which way is up anymore. All I do know is Mum lost my Dad back in 2013 then about a year ago lost her little dog aged 16 she had 2 mini strokes and 2 falls in the garden in winter, the house wasn't being cleaned she wasn't eating properly left the gas on one morning and was depressed being on her own. My sister and I didn't want to just leave her to gradually decline so we sat down to try to find a solution. The solution reached was to sell Mum's and sisters and move in together, Mum in annexe sister and husband in main house. We already had an LPA but it wasn't in action as Mum still has capacity. Mum was happy to let us sell her house and to pool the money for the move, we went both a solicitor and an accountant to make sure it was OK to do this and Mum signed in front of a solicitor that she was happy to do so. We are just trying to do the best thing for Mum and thought we had done it correctly, maybe not.
Inheritance tax may not be of any concern.
Your mum is exempt the first £325k and if dad left everything to her probably another £325k, £650k in total.
Deliberate deprivation of assets to avoid any future care cost is totally separate and there is no limit how far back the local authority can go. Several solicitors are ignorant of this.
You may have to convince the LA that at the time of the large transfer it was highly unlikely that your mum would need care in the future
@jugglingmum has given an opinion that I agree with especially as LAs are cash strapped
Your mum is exempt the first £325k and if dad left everything to her probably another £325k, £650k in total.
Deliberate deprivation of assets to avoid any future care cost is totally separate and there is no limit how far back the local authority can go. Several solicitors are ignorant of this.
You may have to convince the LA that at the time of the large transfer it was highly unlikely that your mum would need care in the future
@jugglingmum has given an opinion that I agree with especially as LAs are cash strapped
This seems to be some sort of inheritance tax rule snippets muddled up but is certainly in no way correct. There is nothing to prevent anyone with full capacity who has surplus capital (ie no deprivation of assets issues) from giving as much as they want to anyone else eg if you have £10million and wish to gift £1million cash no issue. The issues that might arise are related to tax. The 7 year rule applies to gifts made above the annual limit, although the application of this is not as straight forward as it first appears.
If cash is given the only tax in play is inheritance tax, if other assets are gifted than capital gains tax, settlement rules and inheritance tax all needed to be considered, and depending on the nature of the asset SDLT for land/property and stamp duty reserve tax for shares. There are a whole host of exemptions but these rules are very complex and professional advice from a suitably qualified tax practitioner should be sought if these sort of gifts are contemplated.
As @nitram points out, IHT only needs to be considered if the estate will be above the IHT threshold at death, otherwise there is no need to worry about lifetime gifts within 7 years. As well as the £325k annual limit there is also an additional sum on sale of a property - with a few anti avoidance rules around it. Much of tax legislation contains the initial rules which might be say a paragraph and then follows several pages of anti avoidance catches to rule out those trying to find ways round.
If a cash gift is made out of income that is surplus to annual living costs then this is not subject to inheritance tax or any other tax, I've seen annual gifts of £30k upwards out of income - letters were written to confirm out of surplus income.
There are a lot of complex tax rules around gifts but nothing in them to prevent gifts being made.
@jugglingmum is correct and you can give away as much as you like to whoever you feel like. There are no limits but if the estate (including previous gifts over the last seven years) is worth more than the IHT limit then inheritance tax will be payable.
I looked after dad full time for a couple of years and gave up my job to do so, I received carers allowance and nothing else while my brother and his wife continued working in their very well paid jobs and having seven holidays a year. When dad eventually needed 24/7 care I moved in with him and dad agreed to pay me a small token sum of £20 for overnight care which probably saved him well over a thousand pounds a week that would have gone to a care home. My brother was incensed at this and almost spat at me that I would be eating into his share of the inheritance. I then decided that £50 a night would be a fairer sum. There is no inheritance as long as a person is still living and they can spend their money as they wish.
I was surprised that my brother didn't bite my hand off at this arrangement but our relationship no longer exists.
I looked after dad full time for a couple of years and gave up my job to do so, I received carers allowance and nothing else while my brother and his wife continued working in their very well paid jobs and having seven holidays a year. When dad eventually needed 24/7 care I moved in with him and dad agreed to pay me a small token sum of £20 for overnight care which probably saved him well over a thousand pounds a week that would have gone to a care home. My brother was incensed at this and almost spat at me that I would be eating into his share of the inheritance. I then decided that £50 a night would be a fairer sum. There is no inheritance as long as a person is still living and they can spend their money as they wish.
I was surprised that my brother didn't bite my hand off at this arrangement but our relationship no longer exists.
Do not confuse inheritance tax with Deprivation of Assets.
They are completely different and have different rules.
When someone needs either care at home or a care home then whether the Local Authority will help towards the bill is means tested. If they have savings over 23,500 pounds they will be self funding and the LA will not contribute towards any bills. Once someone is under this amount and needs help with payment then the LA will look at that person's finances in a lot more detail and can go back indefinitely - there is no time limit. If they decide that there has been Deprivation of Assets then they will either refuse to fund any care, or take steps to recover the funds (I believe they will use a debt agency and are not adverse to court proceedings).
The scheme that you and your sister have devised @Steve698 seems to me to fall definitely into the DoA category as it stands. There is nothing wrong with building an annex for your mum, but it has to be done in the right way. In particular you have to find out what will happen when your mum needs to move into a care home and the implication to her finances. The solicitor you have used does not seem to have considered this in the slightest. Your sister may think that she will be able to look after your mum right up to the end, but this is seldom achievable.
They are completely different and have different rules.
When someone needs either care at home or a care home then whether the Local Authority will help towards the bill is means tested. If they have savings over 23,500 pounds they will be self funding and the LA will not contribute towards any bills. Once someone is under this amount and needs help with payment then the LA will look at that person's finances in a lot more detail and can go back indefinitely - there is no time limit. If they decide that there has been Deprivation of Assets then they will either refuse to fund any care, or take steps to recover the funds (I believe they will use a debt agency and are not adverse to court proceedings).
The scheme that you and your sister have devised @Steve698 seems to me to fall definitely into the DoA category as it stands. There is nothing wrong with building an annex for your mum, but it has to be done in the right way. In particular you have to find out what will happen when your mum needs to move into a care home and the implication to her finances. The solicitor you have used does not seem to have considered this in the slightest. Your sister may think that she will be able to look after your mum right up to the end, but this is seldom achievable.
OK I can not argue with any of the above, I think the best thing to do is pay the whole £295K into Mum's account, build the annexe and when/if the time comes for Mum to go into a care home there can be no disputing where her assets are or how much they are, surely that can't be breaking any rules ? I am meeting with sister tomorrow, hope we can agree.
I think Steve that's a wise plan. As POA you should invest the money to get what interest you can whilst ensuring that her capital isn't at risk.
I wonder if the costs of the annex might be paid from the mother's funds? On the one hand it is for her to live in. On the other she would be making a long term investment close to the end of life. She would need to own the annex or a share of the whole building. I wonder if it would be considered DOA when the annexe was for her own use?
That sounds like a good decision. Your mum may have wanted to gift you and your sister the money now, but really, it's a whole lot simpler if she keeps it till she dies and you get whatever remains then.
Good luck - I hope you and your sister don't fall out over this.
Good luck - I hope you and your sister don't fall out over this.
Blimey so there is another issue ? The annexe would have to be built with my Mum's funds as we don't have any of our own. So even though it is solely for her to live in it can still be deemed DoA ?
Just a thought, could your sister take out a loan or increase on her mortgage to build the annex. Your mother would live there and pay rent as she would for anywhere she might live. The rent would hopefully cover the repayments and if the time comes that your Mother needs to go into care there wont be a problem. Your Mother’s assets would be in the bank and the annex would belong to your sister, not a problem in sight.
It's OK for her to downsize and bank the residue after buying.
This is different, so ask
They may say that the land registry entry should be changed to show she owns x% of the property as a joint owner. Nobody, especially attorneys, should benefit.
This could cause problems with any LA financial assessment
Again ask.
When OPG have given you options run these past the financial section of your LA.
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Unfortunately it is complicated and I don't know what the answer is to the question I posed. My guess is that it is ok for her to invest in property that she is going to live in as long as it belongs to her and could be sold in future to pay care bills. That might be tricky with a part share of a building. It is not ok for her to invest in an extension to someone else's property that will belong to the other person, that's giving her money away. You need expert legal advice.
So can I just be clear that the whole DoA aspect of this only becomes an issue if care is requested from the local authority.
As for expert legal advice from a solicitor that has full knowledge of DoA and tax matters, where can I find a list of such solicitors ?
Yes, all the while you are self-funding the Local Authority will not look too closely at your mums finances (possibly not at all). It is only once you need LA help with funding care that they will look at your mums finances in detail. Care is likely to cost more than you would imagine and you cant rely on being able to care for your mum without care agencies or a care home.
I don't think tax is going to be relevant.
DoA only applies if your mum requires funding by the LA due to diminished funds, care is very expensive so this could happen sooner than you think.
As for legal aid the first thing to tackle is whether or not the OPG will agree with you mum funding the annex.
If they say 'no' and you want to argue with them you will not only need a good lawyer, you will need very deep pockets.
If the OPG won't back any method of mum financially helping with the annex DoA is not relevant.
Have a talk with the OPG.
DoA only applies if your mum requires funding by the LA due to diminished funds, care is very expensive so this could happen sooner than you think.
As for legal aid the first thing to tackle is whether or not the OPG will agree with you mum funding the annex.
If they say 'no' and you want to argue with them you will not only need a good lawyer, you will need very deep pockets.
If the OPG won't back any method of mum financially helping with the annex DoA is not relevant.
Have a talk with the OPG.
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hi @Steve698
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I have seen this thread pop up a few times and have avoided it because essentially you have created one big headache although it seems unintentionally. I agree with @nitram respnses to this, but there is something that you have all overlooked and which you unfortunately cannot escape. Gifting is about avoiding tax relief, however siging a place of dwelling over requires more specialist work done by few legal firms. The cruxt of this problem like it or not is that once your mums property was sold that then becomes a liquid asset for which if she needs care it is used in payment.
Untangling this mess now will cost you dearly. I would search the internet for any legal firm that might be able to get you out of this mess as its not a simple matter, otherwise you may have to look at selling up to release your mums share for care if this doesn't work out or your mum requires more intensive care -sorry but the LA will not relent if you are sitting on prospective funding for care -its tricky to resolve for everyone
Just to say a few weeks ago I had to take further advice over matters to do with mums funding and the advice is not to sell the PWD's property until you see a firm that deals with these matters if you are planning alternatives to a care home, because once the property is sold it becomes a nightmare if that money is then re-invested elsewhere. We had a long chat out of mutual interest in the issues people face (London based firm) and talked about other issues including this scenario. Your sister is probably right to not get involved finacially besides her contribution to care.
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