Ask the Expert: How can I pass on my property and continue to care for my husband?
PUBLISHED: 05:00 17 February 2018 | UPDATED: 08:49 17 February 2018
My husband is in very bad health following a series of strokes. He is now brain damaged and has dementia.
We jointly own a free hold property which we rent out and, with our own home, it would exceed the allowed inheritance tax bracket.
We have signed over half of our home and the rented property to our two sons, who on the death of either of us will inherit it.
I do all the home care for my husband myself and do not receive any financial help.
Is there a better course of action to take ?
Response from Carl Lamb of Almary Green
There are several strands to this situation, and I’d need to explore a lot more detail before offering any specific advice, but let me at least set out some of the issues you might need to consider.
Firstly, I am sorry to hear about your husband’s ill health. I do hope that you were able to set up a power of attorney for your husband before he lost capacity as you may need to have this in place in order to take any measures with joint property to manage your inheritance tax liabilities.
If you haven’t already done so, then you may need to apply to the Court of Protection to allow decisions to be made. A lawyer can assist you with this, if needed.
My next area of concern is the way that you have “signed over” half your home to your sons. If you did this as a lifetime gift and are still living in the property but not paying a market rent to your sons for the half they own, then you may find that your gift will be considered as one “with reservation of benefit” and it will still be counted as part of your estate for IHT purposes.
If you are paying rent for their share, then the gift will be considered outside you and your husband’s estates once seven years have elapsed since making the gift.
It’s also worth remembering that if ownership has passed to your sons, your home will be included as their assets so could, for example, be included in any divorce or bankruptcy proceedings. Your sons would also need to consider their own capital gains tax position if they later sell the house.
It sounds like you have already given half of your rental property to your sons. This gift will be treated as a “potentially exempt transfer” made at the point when the transfer of ownership occurred, so the seven-year rule will apply to that too. A gift is treated as a sale for capital gains tax purposes, so do be aware of any tax that may be due if the rental property gained in value since you first acquired it.
Giving away assets can affect your entitlement to help with care fees if you find your husband needs external care at some point. Giving the assets away, particularly when there is a likelihood of requiring care, may be deemed to be a “deliberate deprivation” and the value of the assets could be included in assessments for long care costs assistance meaning financial support may be denied even though ownership has been passed on.
Of course, if you have sufficient income and/or capital assets so as not to need such financial support then this may not be such an issue for you.
You state that the combined value of your home and the rental property exceeds the IHT bracket: hopefully you are aware that there is an additional slice of IHT exemption available to you if you leave your family home to your direct descendants – ie your sons, in your case. The residence nil rate band gives you up to £125,000 of additional exemption if death occurs in the 2018/19 tax year, rising in stages to £175,000 in the 2020/21 tax year. This is on top of your basic IHT exemption of £325,000 each, which can be passed on, if unused, to a surviving spouse giving you a combined nil rate band of £650,000.
So you could potentially benefit from a total combined exemption of at least £900,000 depending on the dates of death. Inheritance tax would be payable on the second death on anything above the total unused nil rate band entitlement at that time.
However, it’s worth noting that the residence nil rate band rules are quite complex. For example, if your estate exceeds £2m, it will be gradually reduced to nothing.
My final thought is that there are state benefits you could potentially claim if you are caring for your husband yourself. It is worth discussing this with your GP and exploring what help you can get – both with finance and practical matters.
I do think independent financial advice would be of help to ensure that you are managing any future IHT liabilities and making the most of the allowances available.