Will house sale fall into IHT trap?

By THIS IS MONEY
Updated:

 

My mother has just entered a care home and I need to sell her house to pay the fees. As I will be doing this in advance of her death but in accordance with the terms of her will I have power of attorney.

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Will this disposal be subject to scrutiny for IHT on her actual death?

What should I be careful to do at this stage to avoid tax and financial problems on her death? P.H-S., Ealing, West London

Christopher McNeill, solicitor with Anthony Gold and expert in wills, trusts and probate, replies: It is not clear what type of power of attorney is held, but in any case the sale itself has no inheritance tax consequences, there being no gift of the sale proceeds.

Mother's resources may of course diminish over time as these are used for care fees, but again there is no IHT effect either now or later.

The attorney should only make gifts to the extent authorised by the power of attorney – usually this is limited to the making of small gifts on special occasions such as birthdays and anniversaries, since the primary purpose of a power is not to benefit others.

You should be aware that unauthorised gifts are likely to be written back into the estate on death for inheritance tax purposes - however long before the death they were made.

The attorney should also be careful to record any payments on behalf of the donor that are not made out of her own resources and which are intended to be reimbursed by the donor.

HM Revenue & Customs will need convincing evidence, where a parent or other relative has been assisted by the family in this way, that there is a genuine and binding obligation to repay before they will agree that the debt is deductible from the taxable estate on death.

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