Mother is 70+ and single; she previously received pension credit due to low pension income. Mother receives a legacy from her father. Mother gifts £275k to Daughter to buy a house; Daughter has no income; Daughter's husband pays £500 per month to mother-in-law to assist her with living expenses. What are these payments? There is no written agreement.
Related resources
Replies (16)
Please login or register to join the discussion.
What are these payments?
Surely a question to be directed to the payer? Why would anyone here know?
My personal opinion would be that it is a family arrangement, not any sort of taxable income in the mother's hands. As the house has been gifted with no reservation, the payments are certainly not rent. But it needs a solicitor's opinion really.
Maybe a variation of the father's will ought to have been considered at the time of his death.
What is likely IHT position in future, would mother's estate likely fall into charge?
Need a solicitors opinion and not really for an accountancy forum but if the mother was to need care in the future would the gifting of the property be seen as deprivation of Assets.
+1 to above.
Although you don't spell it out, presumably mother has retained some part of her inheritance? She might better off living off that rather than receipts from son-in-law. Reduces the possibility of her estate falling into IHT and reduces her assets in case of having to claim funding for care.
There may be no written agreement ... but what would the various parties expect to happen if daughter's husband ceased paying £500 per month to mother-in-law?
I agree with every other post so far (including the one asking which of the parties are your clients) but, in the absence of any relevant information within OP, my question might set you down a path towards your question of "What are these payments?"
Oh dear.....Sounds like a dodgy and clumsy arrangement to divest someone of capital for a purpose undisclosed.. I'd tell them to take a hike..
As an fca surely your ears are already pricked before coming here ?
And you post your firm name so its implicit its regarding a client ...man ! to me ethically.. this is a no no
You been borrowing the wizard's creative hat again then?
FWIW I believe (leaving aside the lack of likelihood of son-in-law having set up an annuity scheme) that:
a) the terms of an annuity are always either for life or a fixed term (not something as nebulous as occupancy of a property); and
b) payments from an annuity are treated as income (secured in return for the payment of a fixed sum) and therefore liable for income tax.
So, all joking aside, OP (or rather client) is still lacking a paddle in the creek.
Was this done to preserve entitlement to pension credit?
If so, Calculatorboy's comment has merit. (Though if the £500 is taken into account in assessing entitlement - and therefore presumably denying the credit payments - I don't know where you would stand. Generally, I don't know where accountants stand when clients do dodgy DIY that doesn't work.)
Taxwise, have a look at Ch7 Pt5 ITTOIA.
If you think that applies, then also see Pt15 ITA.
I know someone will 'correct' part of what I just said. So let me preempt that: what I'm doing is pointing out some legislation you may need to consider.
Hi all, thanks for your considered opinions. I will look at each and take further advice if necessary. To explain this is a potential new client who, in our first meeting outlined her situation and wishes a professional opinion on a) her income tax position and b) her inheritance tax position going forward. I thought that this arena may be a good place to start with the unusual scenario outlined. Regards, Ray.
Without intending to invoke the trope of egg-sucking grannies ... you need to start with the facts and then show the current IT and IHT positions (with options going forward, not retrospective re-definitions of the facts as they might have been).
Not enough is clear from the OP (I can't even work out where mother is now living) for any sensible recommendations on a public forum - although you've now got some useful areas for investigation (that are however unlikely to be all you need).
Thanks all for your comments and advice so far.
Have been busy dealing with a substantial estate as a probate licensed professional but now looking at the below further information requested before considering whether I can help/ should act/ need further information.
Mother owns her own house. In response to a request for further information:-
" I confirm there is no formal agreement in place regarding the £500 received monthly from my family. If my son-in-law should die we would then consider my daughter’s financial situation but in all likelihood the payments would cease.", and
"I am not in receipt of pension credit. I informed DWP on 20/4/2020 that due to an inheritance received I would no longer qualify. Payments actually ceased as from 18/05/2020."
