As part of Will appointments one question that crops up time and time again is can I transfer my house to my children now?
The main reason for this is because people are trying to protect assets for their family in the event they need care in the future.
In a world plagued by economic uncertainty and with the cost of living crisis showing no signs of ending anytime soon, it’s understandable people want to do their best to make sure their children have something to inherit from them once they are gone.
What people often don’t realise is that there are various rules about deliberately depriving yourself of assets and there are risks in giving up ownership of your home too.
Zoe Watson, paralegal in the Private Client team at Wake Smith Solicitors, looks at some of the key points and discusses what can be done from a legal and safety point of view.
Deliberate Deprivation of Assets
If you give away cash, or property, specifically for the reason of this not counting towards what you might need to contribute towards care fees, then this is classed as deliberate deprivation.
Many people think there is a seven year rule for this, but this rule actually relates to gifting for Inheritance Tax purposes and not deliberate deprivation of asset checks.
Local Authorities can actually look back as far as they wish to see if there is evidence of deliberate deprivation. If it is proven, then the Local Authority has the power to treat you as though you still own those assets.
Loss of Control
If you no longer own the property you live in, then you have no control over it.
All of the below situations have happened.
- Family fall outs – If you fall out with your children and there is a breakdown in the relationship between you, then there is nothing stopping your children from evicting you.
- Divorce or separation: if your children are married or in a civil partnership, the property may be taken into account in your child’s financial settlement if their relationship breaks down.
- Bankruptcy – If your children fall into financial difficulties and become bankrupt, then the property can be taken into account by creditors as assets that could be realised to pay off some of their debts.
- Who have your children left assets to in their Will? - If your child dies before you and they have left all their estate to their spouse, then you could end up with a son/daughter in law with control over the property.
Tax Implications
There are also tax implications for you and your family and potential loss of allowances to consider. These include:
- Capital Gains Tax: a gift is generally treated as a disposal at market value. Private Residence Relief may be available, but the position depends on the circumstances.
- Stamp Duty Land Tax: a charge may arise if the property is transferred subject to a mortgage or other chargeable consideration.
- Your children’s position: owning an interest in your home may affect their first-time buyer status and could result in higher rates of Stamp Duty Land Tax when they buy another property.
- If your children already own their own homes, then there may be tax implications for them as well, as they will now own two properties.
Inheritance Tax
If you gift the house to your children but continue to live in it rent free, then this is classed as a “gift with reservation of benefit”. This means HMRC will treat you as continuing to own the property when you die, unless you pay market rent to your children, even if you survive by seven years from the date of the gift.
What can be done?
Think about whether you need to do anything at all. The average time people spend in a care home before they die is two years and many people do not require residential or nursing care at all.
Review your overall circumstances. If you have £1 million in the bank but your house is worth £200,000, then the Local Authority will use the money up first before turning to the house. Therefore, it’s unlikely the house will need to be touched although you may benefit from advice regarding your inheritance tax liability.
However, if your property is your main asset, and you have limited cash assets, that would be used up quickly should you need care, then you probably should look at some planning options.
Property Trust Wills
If you are a married couple who own your home jointly, then Property Trust Wills are a possibility.
As part of this process, you must own your home as tenants in common. This means you will own a distinct 50% share of the property, which you can pass via your Will.
A clause is put in your Will which states when the first of the married couple dies a Trust is created over their half of the house. The Trust allows the spouse to remain in the property for the rest of their life and they can use it in exactly the same way as they normally would. The beneficiary of the Trust is not the spouse however, but the children. This means should the surviving spouse need to go into care in the future, then the half share of the property in the Trust cannot be taken into account when the Local Authority assesses their assets.
This ultimately preserves at least 50% of the value in the property for the next generation to inherit.
For professional advice about estate planning and Wills please contact Wake Smith Solicitors here or on 0114 266 6660.
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