If my parents give me their home, how will any future care home costs be calculated?

Q My parents are in their early 80s and own their home – worth about £500,000 – outright so they are mortgage free. In addition to their house they have savings, taking them over the £1m inheritance tax threshold, to maybe £1.2m.

They are thinking of giving their home to me (and then moving out) in the hope of avoiding IHT by surviving seven years after making the gift. Also, they need to dispose of their property so that they can buy and move into more suitable sheltered housing, which should cost less than £100,000.

I am aware that for inheritance tax purposes I will need to obtain a valuation of the property when my parents give it to me. I also know that the local council will take into consideration the value of the property they disposed of when means testing any future care home costs. At the moment my mother has no care needs and my father has a carer visit the home twice a week, which he pays for directly. This costs less than £40 a week.

However, I am unsure how the local council would value the property as I am intending to keep it for at least five years before selling it. I may keep it for more than 20 years.

If their property is worth £500,000 on transfer to me and I still own it when care home fees start to be paid – say in five years’ time – does the council assess the value of the property when my parents gave it away (so £500,000) or its value when fees started to be paid, which could be £650,000 (five years after the gift)?

Also, is the answer different if, after five years, I sell the property for £650,000 and then a further three years later, my parents start paying care home fees and the property would now be worth £700,000?

A Whenever your parents start paying care home costs, the council won’t care what their house is worth because their other assets put them well above the threshold at which they would qualify for financial help.

People in England with total capital under £23,250 are entitled to council help in meeting care home costs but people like your parent who have capital of more – or in your parents’ case way more – than £23,250 do not get council help and have to meet the full cost themselves.

Local authorities only care about people depriving themselves of assets – for example, by giving away property – when doing so has brought down an individual’s total capital to below £23,250.

When that is the case, the council would take into account the value of the property at the time that it did the financial assessment.

However, you are right that it would make sense to have a professional valuation of your parents’ house done when it is given to you. The valuation will also give you an acquisition cost to use when working out any capital gains tax bill if you do decide to sell the property at some point in the future.

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