How can I protect dad’s money?
Q: My dad recently moved into a residential home to get full time care. How can I make sure I get the most from any money used to fund it?
He’s 80 and my brother and I have Lasting Power of Attorney, as Dad is in the late stages of Alzheimer’s disease.
We are in the process of selling Dad’s house and have just accepted an offer of £700,000 - we will use this money to fund dad’s care fees of £125,000 a year.
The problem is, with a state pension and small annuity, Dad falls slightly over the £12,570 basic rate tax band. If my brother and I put the house sale proceeds into a savings account, we are afraid of paying tax on the interest, which seems unfair. Is there anything we can do?
A: You absolutely must seek some advice for this, as it could get tricky.
But first, may I say well done on getting the right paperwork in place for Dad, that must have saved you a huge headache - especially when the time came to sell Dad’s house to fund his care, something that must have been heart-wrenching on its own.
You’re absolutely right, your father would be subject to tax on interest gained on the £700,000 you put in a savings account, because he is a basic rate taxpayer. He can earn up to £1,000 in interest a year before paying tax, anything beyond that and he would pay 20%.
Since interest rates on savings accounts rose, more people are finding themselves caught up in this trap.
There were 1.8 million people who paid tax on their interest in the last year - 82% higher than last year.
If your father’s pension income is less than £17,570 a year he could benefit from an extra allowance known as the starting rate for savings - so he could earn up to £5,000 a year in addition to the £1,000 he already has before paying interest.
Again though, it is vital you take advice - as for every £1 over that pension income allowance, your father will lose £1 of the £5,000 allowance - so it can get complicated.
Also, it would be a good idea to spread out the £700,000 into several bank accounts.
Don’t forget the Financial Services Compensation Scheme only protects savings up to £85,000 if the institution goes bankrupt - so you will need to make sure all of your father’s funds are protected and the simplest way to do that is to spread it over several accounts.
But again, you will need to keep note of what interest is being earned where, as it could be easy to lose track.
For more advice, contact Down’s Solicitors to see how we can help.