If we become concerned about you or anyone else while using one of our services, we will act in line with our safeguarding policy and procedures. This may involve sharing this information with relevant authorities to ensure we comply with our policies and legal obligations.
Find out how to let us know if you're concerned about another member's safety.
Find out how to let us know if you're concerned about another member's safety.
Inheritance and ESA/Tax Credits
Lavender1
Community member Posts: 9 Listener
I was wondering if someone could please help me.
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
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.Information I post is for England unless otherwise stated. Rules may be different in other parts of UK. -
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? -
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.)
Information I post is for England unless otherwise stated. Rules may be different in other parts of UK. -
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?I would appreciate it if members wouldn't tag me please. I have all notifcations turned off and wouldn't want a member thinking i'm being rude by not replying.If i see a question that i know the answer to i will try my best to help. -
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.Information I post is for England unless otherwise stated. Rules may be different in other parts of UK. -
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.
I would appreciate it if members wouldn't tag me please. I have all notifcations turned off and wouldn't want a member thinking i'm being rude by not replying.If i see a question that i know the answer to i will try my best to help. -
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. -
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 you
-
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.
-
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.I would appreciate it if members wouldn't tag me please. I have all notifcations turned off and wouldn't want a member thinking i'm being rude by not replying.If i see a question that i know the answer to i will try my best to help.
-
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.
It appears that the OP is trying to avoid losing means tested benefits after receiving an inheritance2024 The year of the general election...the time for change is coming 💡 -
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.Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
-
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.
Information I post is for England unless otherwise stated. Rules may be different in other parts of UK. -
woodbine said: It appears that the OP is trying to avoid losing means tested benefits after receiving an inheritanceInformation I post is for England unless otherwise stated. Rules may be different in other parts of UK.
-
Thanks for that explanation Calcotti!I would appreciate it if members wouldn't tag me please. I have all notifcations turned off and wouldn't want a member thinking i'm being rude by not replying.If i see a question that i know the answer to i will try my best to help.
-
Thank you all for your comments today.
-
It is complicated and the best advice might well be for them to get legal advice.2024 The year of the general election...the time for change is coming 💡
-
woodbine said:It is complicated and the best advice might well be for them to get legal advice.
-
2024 The year of the general election...the time for change is coming 💡
-
woodbine said:
Brightness
Categories
- All Categories
- 13.4K Start here and say hello!
- 7.1K Coffee lounge
- 106 Games lounge
- 486 Cost of living
- 4.6K Disability rights and campaigning
- 1.9K Research and opportunities
- 230 Community updates
- 9.7K Talk about your situation
- 2.1K Children, parents, and families
- 1.6K Work and employment
- 809 Education
- 1.7K Housing and independent living
- 1.4K Aids, adaptations, and equipment
- 672 Dating, sex, and relationships
- 377 Exercise and accessible facilities
- 859 Transport and travel
- 32.3K Talk about money
- 4.6K Benefits and financial support
- 5.3K Employment and Support Allowance (ESA)
- 17.3K PIP, DLA, and AA
- 5.1K Universal Credit (UC)
- 6.5K Talk about your impairment
- 1.8K Cerebral palsy
- 890 Chronic pain and pain management
- 187 Physical and neurological impairments
- 1.1K Autism and neurodiversity
- 1.3K Mental health and wellbeing
- 329 Sensory impairments
- 835 Rare, invisible, and undiagnosed conditions
Complete our feedback form and tell us how we can make the community better.
Do you need advice on your energy costs?
Scope’s Disability Energy Support service is open to any disabled household in England or Wales in which one or more disabled people live. You can get free advice from an expert adviser on managing energy debt, switching tariffs, contacting your supplier and more. Find out more information by visiting our
Disability Energy Support webpage.