MY LIFETIME CARE
The Care and Home Inheritance Plan and Inheritance Tax
Anyone inheriting a house (or house + farm) must pay Inheritance Tax on the value of the house. There are exceptions for particular relationships and values of home (or Home + farm) but most people outside these special cases who inherit a home are likely to have to pay Inheritance Tax based on the value of the home or home + farm.
However, NO INHERITANCE TAX WILL BE DUE if their donor had taken out a Care and Home Inheritance Plan to pay for their care for the remainder of their life. This is the reason: The CHIP owner granted a long lease on their home (home + farm in case of a farmer) to My Lifetime Care in exchange for payment of all their care costs for the remainder of their life. So the value left in the house (to live in or rent out or sell) cannot be realised until the lease ends in 99 years.
What has been inherited is called a ‘Reversionary Interest’ i.e. the right to enjoy all the benefits of ownership of the home in 99 years’ time when the lease has ended. Because the reversionary interest has little value in the present it does not attract Inheritance Tax.
However, the CHIP lease includes an unusual clause which permits the inheritor of the Home to cancel the lease for nil cost as soon as the outstanding loan secured on the Home to fund the CHIP care payments has been repaid. The CHIP is continually repaying this loan from renting the home out and in only a very few years the loan will have been repaid, and the inheritor can cancel the lease – indeed they can do so sooner if they can pay off the outstanding CHIP loan any other way.