My mother wants to give her grandchildren cash gifts. She is currently in hospital and may need long term care shortly.
However she and my late father have set a precedent in giving ~1k per child each year to help with university costs etc.
According to HMRC site
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there is no limit to the cash gifts she can bestow. However, there is a "may have to pay inheritance tax" clause which I can't find a clear explanation for. So the questions:
Can anyone enlighten me on the inheritance tax bit - who pays it and in what case? Her total assets are
As I understand, she should be able to show a cash flow projection that avoids her eventually having to call on state funds. That might involve
purchasing an immediate needs annuity, at some stage. As I understand it, the problem will occur at the point at which she does call on state funds, at which time she will have to convince people that she could not
reasonably have foreseen that.
I don't believe that the payments to the grandchildren would be considered necessary expenses.
As I understand, she should be able to show a cash flow projection that avoids her eventually having to call on state funds. That might involve purchasing an immediate needs annuity, at some stage. As I understand it, the problem will occur at the point at which she does call on state funds, at which time she will have to convince people that she could not reasonably have foreseen that.
I don't believe that the payments to the grandchildren would be considered necessary expenses.
Hi David
Thanks for explanation - the mists are clearing somewhat. Can I clarifiy your statement "I'm a bit concerned that you are suggesting failing to disclose relevant information." My mother has yet to be assessed (financially or otherwise) for on-going care requirement. Do I assume from your statement that the means testing would include declaration of gifts made on a regular basis previously and in future?
Although we never actually reached this stage, my understanding is that any decision to spend more than necessary for her own well-being which could reasonably lead to her having recourse to state funds is relevant.
Any future gifts would definitely have to be viewed with regard to the possibility that there was an expectation that they would make her eligible for state funding.
I imagine there would be some discretion with regard to past gifts, but they would still be looking to see whether she made reasonable provisions to avoid state funding.
I imagine the problem will actually occur when her capital crosses the means tests limit, but they will be looking for actions before then that
Although we never actually reached this stage, my understanding is that any decision to spend more than necessary for her own well-being which could reasonably lead to her having recourse to state funds is relevant.
Any future gifts would definitely have to be viewed with regard to the possibility that there was an expectation that they would make her eligible for state funding.
I imagine there would be some discretion with regard to past gifts, but they would still be looking to see whether she made reasonable provisions to avoid state funding.
I imagine the problem will actually occur when her capital crosses the means tests limit, but they will be looking for actions before then that would have accelerated the need for funding.
I think your first priority should be to find a good care (with/without nursing) home. Ideally she should have researched the local ones when she was in good health, but I doubt that many people do. You may find that she knows people who have moved into homes. You will probably find that you don't get long to choose once the hospital decides they want to discharge her.
You should find that the administrators of the home will be able to give you advice on the financial side.
I should add that in some circumstances, where a very high level of nursing is required, the NHS will fund the care home completely. It was suggested to us that you should get an evaluation for this, even if she doesn't qualify at the moment, as it will set a baseline for any subsequent review. What we have been talking about, up to now, is council funding.
if she survives 7 years from the date of gift(s), the gifts fall out of IHT (PETs); after 4 years, it's tapered. if the gifts are regular, there's an annual exemption (£3k?) if the gifts are made out of income and there is no change to her standard of living, then the gifts fall outside IHT.
Suggest you get some careful advice.
The means-testing for receiving care payments is another whole can of worms: if the authorities suspect her of trying to pass on her assets to reduce her wealth below a certain amount to qualify for care, then they'll be chasing those transfers.
If she is likely to need long term care, she is likely not to survive 7 years. Conversely, if her illness is such that she is likely to survive
more than 7 years, it is probably essential that she acts very prudently
with her savings, so that, when she runs out of capital, the council cannot claim that she deliberately made herself eligible to have care costs covered.
The £3k exemption is not dependent on the gifts being regular. However , the OP said that she wanted to increase from £1k per grandchild and I suspect there may be three or more grand children, in which case she is probably over the limit.
(There is also an allowance of £250 per person, but this cannot be combined with the £3k for the same person).
However, from the sound of things, she doesn't have enough capital for any of this to matter.
Gifts out of income are the things that have to be regular, but it has been established that she is funding the gifts from capital, so this doesn't apply.
On the information provided, she is not going to pay inheritance tax. I
assume that the value of any house she may own has been included in the < £325k figure.
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