'Granny annex' IHT solution not so simple

Having an elderly relative sell up and move in with you may sound like an effective way to provide care and preserve your inheritance, suggests Arthur Childs, but this scenario has many complexities.

A solution to the expense of residential long-term care is for elderly relatives to move in with their children.

Arthur Childs, director of Arch Financial Planning, says that so long as people are willing to sacrifice some of the freedoms and independence of modern living then there is a firm financial argument.

‘If the relative has a valuable house, say £500,000, then selling that would create funds for a flat or an extension nearer their children for them to live in. For example, a converted garage,’ says Childs. His sister-in-law made such an arrangement.

‘If the children don’t like them living there then their elderly relative would have to spend a great deal on residential care, meaning there would be less inheritance.’

Childs says younger relatives can also become semi-carers. Often an elderly parent doesn’t need full time nursing, just someone to cook for them and clean.

‘I think the most obvious financial reason would be for inheritance tax (IHT). If an elderly relative had an expensive house then selling it would allow them to pass on the cash before they die.’

Complex problems can arise

However, this IHT solution is not straightforward says Jon Wilkey, a solicitor at Gwyn James and a specialist in later life issues.

‘For example, local authorities can demand 100% of someone’s assets by forcing them into insolvency to fund long-term care costs if that person has gone into care within six months of selling their property [Section 21 of the Health and Social Services and Social Security Adjudication Act 1983].’

Specialist advice

Wilkey says it is crucial to obtain specialist legal advice.