Often, clients come forward asking about gifting their property, primarily to circumvent potential future care fees. Despite understanding the instinct to safeguard one's wealth, particularly their home, for future generations, it's crucial to highlight the considerable risks associated with such measures.
The Risk of Losing Control
The most conspicuous risk lies in forfeiting your control over your property post-gifting. While the intention behind the gift may seem clear-cut, you could end up completely dependent on your child or children regarding residency in the property or even future equity release. Without their consent, you may not be able to relocate or make modifications to the property.
Potential Risks for the Recipient
Assuming a favourable relationship with your children, significant risks still abound for the recipients of the gift. If your child is a recipient of benefits, your home's value could factor into their financial assessment. Your child might also face substantial tax consequences resulting from the property ownership, especially if they end up owning two homes legally. This could lead to additional tax burdens, such as stamp duty and capital gains tax, not to mention the legal responsibility for property maintenance and repairs.
Factoring in Divorce and Bankruptcy
Another risk to consider is the prospect of your child experiencing divorce or bankruptcy. Despite your child acting in your best interests, the same might not apply to their spouse or civil partner. Should any legal proceedings be instigated, your home's value would be included in your child's financial assessment for divorce or bankruptcy proceedings, leaving you vulnerable to losing your home.
Local Authority Intervention and the Care Fee Factor
If the primary aim of the property transfer is to avert care fees, the local authority holds the right to nullify the transaction, treating you as the property owner for financial assessment purposes. This could result in wasted time and resources spent on safeguarding your property. A common workaround involves placing the property into a trust, but this comes with its own set of challenges, including loss of control and the burden of the Trust Registration Service (TRS).
Myths Around Inheritance Tax and Grant of Probate
Many believe that gifting a property can help in reducing potential inheritance tax or in obtaining a Grant of Probate. However, the HMRC's 'anti-avoidance rules' could categorise the property gift as a 'gift with a reservation of benefit,' leading to the property's value being included in your estate for inheritance tax liability calculation. Importantly, gifting your property doesn't negate the need for a Grant of Probate if you have high-value bank accounts, shares, or specific investments.
Alternative Considerations
Before considering property gifting to circumvent care fees, discuss your care preferences with your family. Care fees can be hefty, but would you be comfortable with local authority care, or would you prefer your estate to be used for care fees for a home of your choice?
Exploring Life Interest Trust Wills and Professional Advice
For married individuals, creating life interest trust Wills could be an option. This arrangement would leave your respective shares of your home to your children, with a life interest for each other.
For cohabiting, single, or widowed individuals, or those looking to mitigate inheritance tax, it's advisable to reach out to a professional for a non-binding discussion on your circumstances and how they can assist.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.