IHT: can mum pay for respite care from capital?

[freewheeler]

My elderly mother likes to pay for non day to day living expenses from her capital rather than her income (so that any surplus income can be gifted freely without IHT implications). She recently had a bad fall and needs to go into care for a week or two while her fractured elbow mends. While there she will continue to pay the rent and fees for her regular sheltered accommodation. As far as IHT rules are concerned, can the temporary care home fees be considered non day to day living expenses?

[Eboli]

Best wishes that you mum makes a quick recovery.

The answer to your question is 'perhaps'.

It sounds as if you are concerned with making gifts that are 'normal expenditure out of income' and thereby not chargeable transfers for IHT. You may care to look at the HMRC internal instructions on this as they are quite comprehensive for once. Herewith the link

https://www.gov.uk/hmrc-internal-manual ... /ihtm14231

If this is the concern it is worth noting that the sticking point could well be whether mum has sufficient income to maintain her normal standard of living. Obviously on the basis of the information provided it is impossible to say whether this condition is met. But when determining normal expenditure and whether this is made out of income it may be prudent to consider having a reserve to meet contingencies. The pattern of previous income and expenditure is the best guide to this.

Eb

[DrFfybes]

Short answer..
"Yes, it is her money, she can spend it as she wants". If it is a one off exceptional expense then this would be OK.

Long answer, if she is regularly living on her capital then under IHT rules she is NOT giving gifts out of Income, she is actually giving gifts out of capital.
The requirement you could be falling foul of is the gifts must have "left the transferor with enough income for them to maintain their normal standard of living"

"Normal standard of living" is the key here, and depends upon what these 'non day to day living expenses' are. If they are regular and repeated, say a coach trip every couple of months, family meal out, boiler service, car service/repairs, annual maintenance bill for a flat, etc then these are normal expenditure.

In the extreme, you could claim she normall eats bread and dripping and drinks water, and pay for the rest of her shopping from capital. But if there's a pack of hobnobs in there every fortnight then it is normal.

Back in the real world, the chance of small regular gifts getting tracked down are pretty slim, but it is a possibility.

Paul.

[Lootman]

Back in the real world, the chance of small regular gifts getting tracked down are pretty slim, but it is a possibility.

Tracked down by whom, is the question?

The job of discovering and reporting gifts falls to the executor. Very few executors are going to concern themselves with small gifts here and there. They are not going to go through 7 years worth of bank statements and credit card bills (let alone Paypal, Venmo, Cashapp accounts even assuming they can be found) and then investigate each purchase just on the off chance that it might have been a gift.

Was that £50 restaurant charge or Tesco's payment a gift? Who knows? Who cares? In practice the executor will scan 7 years worth of bank statements looking for large cash outflows with no obvious explanation and investigate those further. The vast majority of small transactions (and I make over 100 card transactions each month, which is 8,400 over 7 years) will just be glossed over. Cash transactions will likely never be seen. The requirement is that an executor takes reasonable steps in his diligence and not that he takes exhaustive or excessive steps.

Or tracked down by the taxman? Well they could although unless the estate is huge and there is reason to believe foul play, then that is not likely. I'd be willing to bet that 99% of the time the taxman just rubber stamps what the executor reports and that is the end of it. Because otherwise it is a huge amount of work for probably little reward.

In my case I make it easy. I document my gifts. Any transaction that I did not document as a gift will be reasonably assumed by my executor to not be a gift, and he will have my documentation as evidence for taking that position.

[DrFfybes]

Back in the real world, the chance of small regular gifts getting tracked down are pretty slim, but it is a possibility.

Tracked down by whom, is the question?

Whoever administers the Estate.

The job of discovering and reporting gifts falls to the executor. Very few executors are going to concern themselves with small gifts here and there. They are not going to go through 7 years worth of bank statements and credit card bills (let alone Paypal, Venmo, Cashapp accounts even assuming they can be found) and then investigate each purchase just on the off chance that it might have been a gift.

So you're agreeing with me?

Paul

[Lootman]

Back in the real world, the chance of small regular gifts getting tracked down are pretty slim, but it is a possibility.

Tracked down by whom, is the question?

Whoever administers the Estate.

The job of discovering and reporting gifts falls to the executor. Very few executors are going to concern themselves with small gifts here and there. They are not going to go through 7 years worth of bank statements and credit card bills (let alone Paypal, Venmo, Cashapp accounts even assuming they can be found) and then investigate each purchase just on the off chance that it might have been a gift.

So you're agreeing with me?

Yes. I guess I must have a reputation here for being argumentative here if you thought otherwise.

I do think it is interesting how different people view the role of an administrator of an estate differently. My view has always been that you have to be diligent, but not paranoid, pedantic, prolific or petty.

[scrumpyjack]

An elderly woman is not likely to be making hundreds of payments a month or galavanting round the world on her Amex card!

An executor looking through bank and credit card statements is not going to have too onerous a task finding items to query.

[Lootman]

An elderly woman is not likely to be making hundreds of payments a month or galavanting round the world on her Amex card!

An executor looking through bank and credit card statements is not going to have too onerous a task finding items to query.

In that case, probably so. But there are many people who have lives that involve huge numbers of small financial transactions, and the idea that an executor could or should research each one on the grounds that it might just be a gift, strikes me as fanciful.

[chas49]

Moderator Message:
Let's not take the debate about an executor's duties too far on this thread please. The OP wanted to know about a specific issue - the wider question has been discussed on this site quite a few times, so perhaps we could leave it for now on this thread? Thanks (chas49)