Many people have questions about transferring their property to a relative or into a Trust. Often, these enquiries are fuelled by concerns about care home fees or inheritance tax but what are your options and is it really such a great idea?
A roof over your head is a fundamental need. Before you make any decisions, remember: –
Rule 1 – always consult a Solicitor before taking any steps that would affect the ownership of your house. The pitfalls are many and you need tailored advice before making any decisions.
Rule 2 – never sign up to anything on the basis of an unsolicited approach. If it sounds too good to be true, it probably is. Get a second opinion before deciding.
Why Transfer Your Property?
- Equity Release – you may wish to release some value from your property whilst continuing to live there. This can be an appropriate course of action in some circumstances. This is a specialist transaction, and you need to be fully informed of the pros and cons by a specialist Solicitor before proceeding. Equity Release can significantly reduce the value of assets passing to your relatives on death.
- Care Home Fees – broadly speaking, if you don’t own it, property cannot be used to pay for your care. However, if at the time you transfer ownership of any asset it is reasonably foreseeable that you will require care, you may be assessed by the Local Authority as having access to that asset in order to pay for your care. Any scheme which promises avoidance of care home fees should be viewed with suspicion. Get a second opinion.
Remember, not all of us will require care and, if we do, there are circumstances in which property is disregarded during the financial assessment process. Seek advice – I have seen a number of clients who have given away a property that would otherwise have been disregarded, with the result that they end up paying more.
- Inheritance Tax – if you give away property entirely (i.e. you no longer receive any benefit from it; no income, no rent, and you no longer live there or holiday there rent-free), then the value of the property is out of your estate for inheritance tax purposes provided you survive the gift by seven years.
If you continue to benefit from the gift, the property will remain in your estate for inheritance tax purposes. Gifts of your primary residence are therefore rarely an appropriate way of mitigating inheritance tax. If inheritance tax is a concern, seek advice from an independent financial advisor or chartered tax advisor. There are many solutions they can offer and these should be tailored to your personal circumstances.
Wills and Trusts
In certain circumstances, Lifetime Trusts and/or Trusts in your Will can mitigate exposure to inheritance tax and/or care home fees (in the case of surviving spouses), speak to your Solicitor for tailored advice.
Irrespective of your reasons for giving away property, remember:
- Once it is gifted you cannot get it back;
- Where are you going to live and how is your right to live there protected?
- If the recipient of the gift subsequently divorces, is declared bankrupt/insolvent, or dies, the value of the gift may be lost;
- A gift of property may be subject to stamp duty, if there is an outstanding mortgage, and gifts to a relative other than your spouse may be subject to capital gains tax.
The Wealth Management Team at Churchers LLP are happy to assist you with advice on all aspects of gifting.
Written by Faye Evans, Partner at Churchers LLP