Is there any logic to moving her assests to her two nieces why she is still alive?
Thoughts would be greatly appreciated
I think the key to this riddle depends on the life expectancy of dear aunty.
Plan A
If the decision is to stay out of the fair deal scheme for now and the next five years, and to transfer 1.6m of assets to the nieces now, the following is relevant :
1)There is an immediate CAT bill of half a million for the nieces.
2)If the property is transferred, then stamp duty is payable on this also (unless the property is sold by the aunt)
3)Tax relief on nursing home fees, based on 50,000 per year, will save up to 25000 on income tax for the nieces
4) The nursing home fees of say 50,000 need to be paid each each year for five years
5) A fair deal application after five years will still raise a FD assessment on the aunt of 80% of her pension income so the FD cost is not avoided completely
6) Pension income is assumed to be 10K per year
7) Net cash flow for five year period is 1600K - 500K - 250K +125K +50K leaving an ending balance of 1025K
8) In year six she can apply for fair deal and pay only 80% of her pension = 8K
Plan B
If the decision is to enter the FD scheme now and NOT gift the assets, the following is relevant :
1) The aunt pays 250K to the nursing home over five years
2) She earns 10K per year pension
3) Net cash flow for five year period is 1600K - 250K + 50K, leaving an ending balance of 1400K
4) In year 6, she is assessed only on her cash balance of 600K plus 80% of her income which means she is still paying her way 100%
So the conclusion is that she saves slightly by staying out of the FD scheme for five years and gifting her assets now. The main saving is the tax relief to the
nieces but the down side is the messy handling of her assets now, selling the property etc and the stamp duty implications. The house could take a year
to sell which would reset the FD clock to six years instead of five. If the aunt lives for longer than six years, then the attractiveness of Plan A is greater.
If the aunt passes away within five years, the attractiveness is limited to the income tax credits less the stamp duty (if any) On the other hand if the 800K cash can be invested at 3%, the difference between plan A and plan B is miniscule over five years. If the aunt lives longer than 5 years, plan A is likely to be better.
Other considerations :
The value of the house might go up or down in five years
CAT rates might go up or down (most likely down)
The rules of the FD scheme may change
Personally, I would opt for entering the FD now, not gifting the assets and instead seeking to invest the 800k cash @ 3%
In this case aunty has substantial savings and could easily fund her own nursing home care for at least the next 10 years. Why move assets, can’t see aunty benefitting from this arrangement, so why go there ?
Particularly as aunty is very ill, it’s probably unlikely she will live beyond her substantial savings, if she does live a long time, assistance can be applied for nearer that time.
If I was aunty I would like my house and cash to remain mine. My two nieces can have the house and whatever cash is left when I’m gone, not before.
Of course if aunty wants to move her assets now, fair enough. But it does seem very complex with many uncertainties.
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