Case Study 7

Winning NHS Continuing Funding and dealing with the IHT implications

The situation

M rs H” contacted us when she assumed responsibility as Attorney for managing the financial affairs of her sister “Miss I” who had suffered from various health issues, including the loss of mental capacity. Miss I had recently been placed in a Nursing Home following an emergency admission by social services.

The sisters lived in different areas of the country. Mrs H had been told by her sister’s Social Worker that, because Miss I had a substantial public sector pension and significant assets, the responsibility for arranging her care and for paying for it lay with Mrs H. We immediately introduced a third party expert to assess Miss I’s situation.

The solution

The expert was of the view that Miss I’s care needs were such that responsibility for providing appropriate care and for paying for it lay with the NHS. Mrs H instructed the expert to advance her case. After following due process, including an appeal, it was agreed that Miss I was entitled to full NHS Continuing Healthcare Funding.

Our expert was able to negotiate Miss I’s relocation to a Nursing Home close to Mrs H’s home. Her fees are now fully met by the NHS. We do, however need to be mindful that this situation could change should Miss I’s health improve.

The immediate issue faced by Mrs H became more about investing her sister’s capital appropriately and mitigating a potential inheritance tax liability: her estate was valued at significantly higher than the inheritance tax allowance available to a single person.

Miss I’s house was sold very quickly. On our advice the proceeds were invested into a range of Business Property Relief qualifying investments. This would ensure that funds remained accessible to Mrs H so that she could meet her sister’s expenses in the event that NHS funding was ever withdrawn; but, if NHS funding remained in place, the capital would become exempt from inheritance tax after a relatively short two-year period.

Because of the amount involved we used a combination of six different strategies to diversify the investments – each with a different risk profile. Diversification can potentially improve returns, reduce risk and build in some protection against future changes in tax legislation.

Miss I’s health has now improved and she is still with us more than two years down the line. The business property relief qualifying investments increased the capital which will now be exempt from inheritance tax.

As her sister’s Attorney, Mrs H is broadly permitted to continue making any reasonable gifts which Miss I was accustomed to making whilst she was in control of her own affairs. For the avoidance of doubt we suggested that Mrs H sought Court approval to continue regular gifts to charities and various family members. We also prepared a report for the Court which showed that, given the extent of her capital and her current NHS funding, all of Miss I’s substantial income could be gifted without compromising her financial security.

The Court accepted our report and Mrs H was given authority to make regular gifts out of Miss I’s monthly income. These gifts immediately benefit younger family members and, because they are made out of surplus income they are exempt from inheritance tax.

The outcome

Miss I continues to receive the care she needs in a very nice location convenient for other family members. Her care costs are rightfully met by the NHS; but, if she ever ceases to qualify for state funding, Mrs H has access to a cash reserve immediately. That reserve is sufficient to cover any period we will need to reorganise other investments. In the meantime, Miss I’s estate is growing steadily in value but no inheritance tax liability should arise in the event of her death.