Many people have questions about transferring their property to a relative or into a trust. These enquiries are often fuelled by concerns about care home fees or inheritance tax. Have you considered your options and the pros and cons of transferring your property to a relative or into a Trust?
A roof over your head is a fundamental need. Before you make any decisions, remember to always consult a solicitor before taking any steps that would affect the ownership of your house. There can be many pitfalls and you need tailored advice before making any decisions. Never sign up to anything that’s been offered to you unsolicited. If it sounds too good to be true, it probably is. Always get a second opinion before deciding.
Why transfer your property?
- Equity Release – you may wish to release some value from your property while 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 passed to your relatives on death.
- Care Home Fees – broadly speaking, property cannot be used to pay for your care if you do not own it. However, there are exceptions to this rule, if it is reasonably foreseeable that you will require future care at the time you transfer ownership of any asset, you may be deemed by the Local Authority as having access to the asset in order to pay for your care. Any scheme which promises avoidance of care home fees should be viewed with suspicion, so be sure to get a second opinion. Remember that not all of us will require care and, if we do, there are circumstances in which property is disregarded during the financial assessment process. We have seen a number of clients who have given away a property that would otherwise have been disregarded, meaning they ended up paying more.
- Inheritance Tax – if you give away property entirely and you no longer receive any benefit from it (meaning you receive 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. 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, here are some key things to remember and consider:
- 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.