buying council house with a loan from dad, who may end up in care home

[izzitme101]

Not sure if this is the right forum or not for this one, but here it is.

 

My dad has offered me an interest free loan to buy my council flat, which is all good, and everyone is happy to go ahead with it.

 

The problem i have is, within the next five years, he may well end up in a care home, which means his assets will be taken to pay for it.

Does anyone know, as the loan will count as an asset, if i can be forced to pay back, or sell, to pay the bills, or would the terms of the loan still hold, but just be transferred to the local authority paying for the care home?

 

I have asked my solicitor, they told me to ask the council, who then told me they dont know, or know who to ask.

[citizenB]

I will try and find someone to help.

[izzitme101]

ok thanks, ive also spoken to a couple of ifa's, and they dont know either.

[Ethel Street]

The answer is probbaly in here - the government's statutory guidance to Local Authorities on care home financial assessments - but it gives me a headache just looking at the contents page so I'm not surprised the council couldn't work it out.

 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/301250/CRAG_34_April_2014.pdf

[izzitme101]

ok thanks, ill take a look

[p3t3r]

Sorry I can't answer your questions. However, I suggest an alternative scenario since this is a 0% APR loan from your father.

 

If your father decided to give this money to you as a gift, then below link is worth reading.

 

https://www.gov.uk/inheritance-tax/gifts

 

Any private arrangements for repayment on the 'gift' should surely be between you and your father, - so this will negate any future problems since the gift can not be counted as an asset?

[izzitme101]

i have looked at that, and he isnt expected to be alive for another seven years unfortunately

[honeybee13]

izzitme, I think you're right to research this. I don't claim to be an expert on care home fees and local authorities, but I can see that your father disposing of his capital to you, even as a loan, could be a problem. The thing that local authorities don't like is Deprivation of Capital, so you need to know if this loan would come under that.

 

HB

[izzitme101]

from the little info i have gathered, im pretty sure it would be,

and i dont have a problem paying back every penny of it.

What i need to know is if the local authority would be able to change the terms of the loan

to make me pay it back quicker than the agreement states.

Main reason being, if they can, and im forced to sell within five years, i lose the discount, and the whole exercise would have been pointless.

I think ill speak to my union rep at work this week, and see if he can find anything out.

[honeybee13]

I think your problem could be that the local authority, if they decide it's deprivation of capital, could treat your Dad as if he still has the money and cut back what they pay for his care.

 

HB

[izzitme101]

yes, thats what bothers me most.

will speak to union tommorow to see what they can find out.

[p3t3r]

i have looked at that, and he isnt expected to be alive for another seven years unfortunately

 

the link i gave earlier says:

 

The estate doesn’t pay Inheritance Tax on up to £3,000 worth of gifts given away by the deceased in each tax year (6 April to 5 April). This is called the ‘annual exemption’.

So... you want to buy your home, your father could gift £3,000 before 5th April and another £3,000 after - so this is split up into 2 financial years.

 

This gives you a total of £6,000 which you are exempt from paying the money back.

[steampowered]

It doesn't sound to me like this is really a 'loan'. If it is a loan you would need to be able to clearly explain what the requirements for repayment are. I think this is more likely to be treated as a gift, and there is guidance on that at http://www.lawsociety.org.uk/support-services/advice/practice-notes/gifts-of-assets/ and http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true.

 

My understanding is that the local authority would find it difficult to force the money to be repaid after six months. However, if they take the view that the purpose of the gift/loan was to deprive your father of assets, they could count it towards your dad's capital in which case the authority would still have to provide care but he would end up being liable for the charges. If there is no immediate prospect of dad entering care it would probably be quite difficult for the authority to show that the arrangement was done to avoid care charges.

 

Also just to point out that loan repayments are often treated as income and not capital.

 

The only person who can properly advise you on this would be a solicitor. I don't think an IFA or your union can give you a clear answer. If your solicitor doesn't know the answer you could ask a solicitor who practices in this area who should know their way around the very detailed regulations.

[izzitme101]

it will be a loan, and i will be required to pay it all back to.

we are working on terms that are reasonable to both of us at the moment,

and of course, it will all go through the solicitors to.

I am trying to find one, seems a rare breed though :O

[honeybee13]

Hello there.

 

Try the Law Society website, their Find a Solicitor function. Often wills and probate lawyers know about local authority rules.

 

HB

[izzitme101]

ahh thats what im looking for.

well i called union solicitors already, theyll get back to me in the next couple of days, ill keep this updated

will see if i can get some basic advice before then though