Caring costs

[scavvy]

My father lives in a cottage which he half owns, and in which we have a ½ share (total value about £350K) He has decided that he is getting to the age where he should really be in a residential home, which will cost about £39000 per year. If we come to an arrangement to buy his half of the home from him, and pay the £39000 charges, (reducing his portional share value over the next 5 or 6 years by that figure), how do we stand with regard to inheritance tax. Will there be any future liability on the purchased proportion, or will this reduce his overall estate value., which of course would be desirable.

He does receive a pension (though not sufficient to pay for the home), and his overall estate will incur an inheritance tax liability.

Many thanks

[pqtaxation]

If we ... buy his half of the home from him, and pay the £39000 charges, (reducing his portional share value over the next 5 or 6 years by that figure), how do we stand with regard to inheritance tax. Will there be any future liability on the purchased proportion, or will this reduce his overall estate value., ... .

... his overall estate will incur an inheritance tax liability.

Precisely what you are asking is not clear to me but possibly what I write below might help you.

Each person has a £325k threshold (or nil rate band NRB) for IHT. If you mother pre-deceased him whilst married (and/or another wife pre-deceased him) then he may have upto another NRB to make upto £650k in total.

If father were to die soon you write there would be IHT payable. Hence in addition to his half interest worth say £160k (entire house worth £350k so small discount of around 10% for 50% holding) then he must have at least £165k of other assets for his estate to to pay IHT.

Are you asking whether your buying his 50% interest in house will reduce the value of his estate on which IHT is calculated? The answer is no. Buying his 50% interest at market value will merely replace his interest with cash. Buying it at under value (zero for a gift) will create a PET (potentially exempt transfer) of the difference between market value and the price paid (zero if a gift) which will for added to his estate for 7 years for IHT liability purposes.

If he pays care his care costs then of course the value of his estate will be reduced by what he pays out for his benefit and is owed to care home at time of his death.