Have Tax Questions? Ask a Tax Expert for Answers ASAP
Hello, I'm Keith and happy to help you with your question.
Your friend has made you a gift of GBP 80K. He has created a Potentially Exempt Transfer (PET) in his estate. PETs run off on a taper over 7 years. In the event of the donor's demise within this time frame the PET is added back into his estate for Inheritance Tax (IT) purposes and is the first tranche to suffer IT. If the estate has insufficient funds to meet the PET it cascades down to the recipient for immediate payment. IT only applies to estates over 325K and is at 40%, flat rate on any assets in excess on death. Worst case scenario is a possible PET charge of GBP 32 on you personally. You protect against this through a reducing term life insurance policy. However if his estate on death does not exceed the 325K limit there is no IT.
As for going into care that is entirely a matter for the relevant Local Authority if they are landed with a liability for his care. This is an incredibly complex process, Age UK's guidance notes alone run to a mere 56 pages! As far as I can gather an assessment will look at the income available to a person with care needs as part of the checks undertaken by the authority. You could not under any circumstances whatsoever be held responsible for your friend's care although I have known of cases where there has been a 'try on!'
I do hope my answer has been of help to you.
What do you mean by GBP32? Do I have to take out a reducing term life ins policy? I do not have /need life ins. at present. If he went into care he has 2 houses which could be sold. His assets would be about 3k max. Thank you for answer so far.
No, the sliding scale on the PET is a time based one. 0 - 3 years 0%, 3 - 4 20%, 4 - 5 40%, 5 - 6 60%, 6 - 7 80%, 7+ 100%. It's a race against the Grim Reaper
.Marry him before the gift and the PET disappears, simple as the meerkat in the TV adverts says. Transfers between spouses are out side the scope of IT. A bit flippant I appreciate, but highly relevant.
I have to put the ball back in your court.