Ask the Experts: If our mother gives us £55,000, will it impact on inheritance tax?

Published by Lisa Vaughan on 21 December 2017.
Last updated on 21 December 2017

Q

My mother has recently moved into council-run sheltered housing and will complete the sale of her house next week. She plans to give the money from the sale to my sister and myself – around £55,000 each – as this would have been the inheritance for us had she died while living in it. What are the tax implications of giving the money to us this way? 

From:
PB/Aberdeen

A

It’s quite common for parents to want to give money away to their children, sooner rather than later, while they’re young enough to enjoy it. However, there are a few key considerations that your mother should bear in mind before deciding to gift such a large amount of cash.

Your mother should make sure she keeps enough cash for herself as she may need it later. The difficulty is that no one knows what will happen further down the line. Your mother could live for a long time and need cash to maintain her lifestyle in retirement. She may need to go into residential care and need the money to help pay for it.

If someone has assets between £14,250 and £23,250 in capital and savings and is eligible for care, the local authority will contribute towards care costs. If someone has assets above £23,250, they will have to fund all of their own care costs.

When assessing a care funding claim, local authorities usually ask about current and previously owned assets, including any that have been given away in the past. They may view gifts as ‘deliberate deprivation of assets’ and an attempt to conceal wealth to avoid paying for care. The local authority could treat the full value of the gifts as if they have not been made and include their value in any test for care funding in the future.

If your mother did have to rely on the local authority to pay for her care, her choice of care provider would be restricted to those providing care within the local authority’s budget. However, if she retained control of her cash she could have more choice about the standard of care she receives, as she would be paying for it.

Is your mother in receipt of any means-tested benefits? When assessing your mother’s eligibility for these benefits, the Department for Work and Pensions (DWP) could treat a claim as though your mother still had the money and then potentially reduce the benefits being paid. I would suggest she speak with the DWP about this to clarify the position.

If your mother made outright gifts to you and your sister and then passed away within seven years, the gift amounts may be added back into her estate and considered for inheritance tax (IHT) purposes. IHT is only likely to be due if the total estate was worth more than the current nilrate band of £325,000.

You may want to encourage your mother to seek the services of an independent financial adviser, who would assess your mother’s immediate and long-term needs and help her to consider any implications before making any final decisions about gifting her house proceeds. 

Lisa Vaughan is a chartered financial planner at Fogwill & JonesFind out who our experts are on the Ask the Experts homepage.

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