Inheritance and ESA/Tax Credits
Our mortgage is still quite substantial and there is not long before it must be paid in full.
My father passed away last year and the Probate hasn't yet been submitted. Before it is, my Mum, who is his beneficiary, has made a suggestion that she could change the will by deed of variation to pay off our mortgage.
My husband is disabled and receives PIP and Income-related ESA and I receive carers allowance and child tax credit. Some of the benefits are means tested.
My question is, if I inherit the exact amount to pay the mortgage and if this goes into our our bank account and straight out to pay off the mortgage, will it have any affect on our means tested benefits?
Research suggests a mortgage can be paid off, if it's your main home, and it won't affect the means tested benefits, but I'm not sure if a lump sum going in and straight out of our bank account has to be declared before or after paying the mortgage, or at all? Or would I declare the mortgage has been paid off? Is there any formal/legal written answer to this anywhere?
We will not really be financially better off on a day to day basis as we are only paying a small interest only payment, but it will ensure we don't lose our home and give us huge peace of mind for the children to stay where they have grown up and at the school they are in. Our finances will be the same and the only capital we would have would be locked in the house.
Many thanks
Comments
-
There is a risk that it could be seen as deprivation of capital. If applicable this would only affect ESA as Tax Credits, PIP and CA are not affected by capital.
I think it may be safer for your mum to inherit the money and then pay the mortgage off for you. However I'm not sure how that then affects possible inheritance tax liability when you mother dies.
If you were on UC rather than ESA it would be OK because paying off debt is never deprivation of capital. If there is a clear inheritance tax benefit to her doing a deed of variation you could therefore do a benefit check to see whether you would be better off on UC rather than ESA and Tax Credits, if so switch to UC before you receive the money and then immediately pay it out. If received and paid out within the same UC assessment period the UC award is not affected.
The deed of variation can be done at any time up to two years after the date of death and can, to the best of my knowledge, be done after probate.0 -
Dear Calcotti,
Thank you very much for your reply. Would this be the case if it was stated in the Deed of Variation that it was specifically left to pay my mortgage?
Could it be left to my 18 year old daughter and she pay off the mortgage as a gift?0 -
Lavender1 said: Could it be left to my 18 year old daughter and she pay off the mortgage as a gift?Lavender1 said: Would this be the case if it was stated in the Deed of Variation that it was specifically left to pay my mortgage?
(Note - I've expanded my previous reply while you were posting.)
1 -
Lavender1 said:Dear Calcotti,
Thank you very much for your reply. Would this be the case if it was stated in the Deed of Variation that it was specifically left to pay my mortgage?Potentially yes because it may look like this was done so that your means tested benefits won't be affected. Therefore deprivation of capital could still apply.I agree with calcotti, why can't your mum pay off the mortgage for you?1 -
poppy123456 said:Lavender1 said:Dear Calcotti,
Thank you very much for your reply. Would this be the case if it was stated in the Deed of Variation that it was specifically left to pay my mortgage?Potentially yes because it may look like this was done so that your means tested benefits won't be affected. Therefore deprivation of capital could still apply.0 -
Thanks calcotti, i didn't think of it that way. I still think it would be so much easier for the mother to just pay it off for them. They mortgage company may ask for a letter and proof of where the money came from though because i know some do when gifting money this way.
0 -
Thank you. Sorry what does OP and DM stand for.
My mother is elderly and was worried I would have to sell my house to pay inheritance tax if she passed away within 7 years. This would be a gift from my father within his allowance but obviously mum would be the person who has asked for the deed of variation.
So where do I actually stand.0 -
Sorry I don't know how to answer to an individual post. Thanks Calcotti, I have seen your further replies and expansion, very helpful, thank you0
-
If the money is left to my daughter and she gifts it to our mortgage. Would that then be classed as capital and affect the means tested benefits. She will be paying off our debt. My husband is disabled and needs full time care from me and we don't want to lose our home which will affect our children's lives.0
-
OP = Original poster. DM = Decision Maker (DWP)Inheritence tax? I assume the mortgage is in your or your partners name so there would be no inheritance tax. Your mum paying off the mortgage would be a gift. You won't lose your house.0
-
Lavender1 said:If the money is left to my daughter and she gifts it to our mortgage. Would that then be classed as capital and affect the means tested benefits. She will be paying off our debt.0
-
poppy123456 said:Inheritence tax? I assume the mortgage is in your or your partners name so there would be no inheritance tax. .
If a deed of variation is done the money is treated as part of dad's estate. However it may make no difference because I think it then reduces the inheritance tax allowance transferred from dad to mum for her to use later so could make no difference to her later liability.
I think (but am not sure):
1) Dad has nil band £325,000.
Mum has nil band £325,000.
If all of dad's assets go to mum he hasn't used any of his allowance and it can be transferred to mum (I'm assuming they were married)
Mum now has a nil band of £650,000.
2) If a deed of variation is done to give £50,000 to OP then dad has used some of his nil band and only £275,000 is transferred to mum and her nil band allowance is now £600,000. So she has reduced her assets but also reduced her tax free allowance, I can't see any benefit.
3) If she gets the lot and has £650,000 nil band and then gifts the money that money is potentially exempt after 7 years.
I think a deed of variation doesn't help when looking at transfers between spouses whereas it would be a very helpful device if the money was coming from a different relative.
However these are inheritance tax questions, not benefits questions, and not an area I feel confident offering advice on.
In any case, if mum's estate is large enough for inheritance tax to be payable I would have thought there would still be enough value in it to pay any inheritance liability without OP having to sell her house to fund it.
0 -
woodbine said: It appears that the OP is trying to avoid losing means tested benefits after receiving an inheritance2
-
Thanks for that explanation Calcotti!0
-
Thank you all for your comments today.0
-
woodbine said:It is complicated and the best advice might well be for them to get legal advice.0
-
woodbine said:0
-
Hi,
I thought it might be worth also considering the implication of the capital rules relating to capital payments made to third parties on behalf of a claimant. In some circumstances you are treated as having capital you do not have and this is called notional capital. The starting point is if someone makes a capital payment to someone on your behalf you will be treated as still having that capital. However, according to Regulation 115(3)(c) ESA Regulations 2008 payments to a third party do not count if they are not included within a list of certain normal living expenses and mortgage payments are not included in this category.
So if the mortgage company is prepared for mum to redeem the mortgage on behalf of her daughter that would seem like a sensible option to pursue.Notional capital
Capital payments to a third party on your behalf (CPAG 2021/2022)
If someone pays an amount to a third party (eg, a fuel company or a building society) for you or your partner this may count as your capital. It counts if the payment is to cover:
certain normal living expenses – ie, food, household fuel, council tax, water charges or ordinary clothing or footwear. School uniforms and sportswear are not ordinary clothing, nor are special shoes needed because of a disability. Payments made, for instance, for food or clothes for you or your partner count as yours.; or
•rent which could be met by HB (less any non-dependant deductions); or
•for IS, income-based JSA and income-related ESA only, housing costs which could be met by IS, income-based JSA or income-related ESA.
Payments to a third party do not count as yours if they are:
•for other kinds of expenses (eg, a TV licence or mortgage repayments), unless they come from a benefit or pension (see below);
The question of deprivation of capital arises if mum makes a capital bequest to the daughter. Unlike UC, for legacy benefits there is a risk if a claimant uses capital to pay off debts they may be regarded as depriving themselves of capital. As previously advised by @calcotti it is not sufficient to show that there has been a deprivation of capital but also that it was done with the "significant operative purpose" to secure or retain entitlement to benefit. The OP's situation is that she has an interest only mortgage term and she is concerned that she will need to sell her home to repay the loan at the end of the term. She also faces rising interest repayments. Her motivation is to keep her home and to avoid paying rising interest payments on the loan. As @calcotti points out she could use the legacy to discharge the mortgage were she on UC without any adverse affect on her benefit entitlement. The decision is down to the DWP decision maker who will look at all the circumstances of the case.
I cannot give any useful input on any tax implications on any of the above.0 -
Thank you very much Sue, this is very helpful.0
-
woodbine said:'If mum pays off the mortgage the money will be seen as a gift and if she dies within 7 years IHT would be payable on the amount of the gift, assuming the gift was over £3000.'Just on a personal note, & as with many things. 'it all depends,' such as on the perceived value of a person's estate. You can gift much more than £3k if you don't think it will be more than the Inheritance Tax Threshold in such an instance.Much tho I teased my children that they would have to look after me for the next 7 years, this will not always apply I found due to my solicitor's advice, so 'depending.' IHT is not always an issue.Others have given their expertise about the impact with benefits, but just wanted to correct misinformation that IHT will not always apply.In gifting monies to my daughter, I found her solicitor's wanted to see where the money came from, due to 'money laundering ' issues that they have to take into account.
1
Categories
- All Categories
- 13.7K Start here and say hello!
- 6.7K Coffee lounge
- 54 Games den
- 1.6K People power
- 39 Community noticeboard
- 21.1K Talk about life
- 4.8K Everyday life
- 7 Current affairs
- 2.2K Families and carers
- 803 Education and skills
- 1.7K Work
- 403 Money and bills
- 3.3K Housing and independent living
- 828 Transport and travel
- 639 Relationships
- 57 Sex and intimacy
- 1.3K Mental health and wellbeing
- 2.3K Talk about your impairment
- 836 Rare, invisible, and undiagnosed conditions
- 888 Neurological impairments and pain
- 1.9K Cerebral Palsy Network
- 1.1K Autism and neurodiversity
- 33.9K Talk about your benefits
- 5.5K Employment and Support Allowance (ESA)
- 18K PIP, DLA, and AA
- 5.8K Universal Credit (UC)
- 4.8K Benefits and income