Among the Private Client team, clients often ask us whether putting their home into the names of their adult children would be a good idea.
This is usually due to concerns about the costs of care as they become elderly, or perhaps fears that their home would have to be sold to pay Inheritance Tax on their death, when they wish to preserve their home for future generations.
Whilst these are perfectly understandable concerns and, on the face of it, transferring the home to a child might seem a logical way to safeguard against such concerns, more often than not the answer to this question is “No, it would not be a good idea”.
A transfer of this kind would be deemed as a gift from parent to child. The parent may trust the child to act entirely in the parent’s best interests, but if the child were subsequently to go through a divorce or bankruptcy, the relevant authorities would include the value of the house in any assessment of the child’s finances, as the child now owns the property. This puts the parent at huge risk of losing their home and is entirely out of the control of the child (and the parent).
The above risks are in addition to the complete loss of control that the parent then has over their own home. They would be unable to take out a mortgage or equity release and would be completely at the mercy of the child if the parent wishes to move house.
There are also risks for the child receiving the gift. If the child is receiving any form of means‑tested benefits or maintenance, the value of the home would be included in any financial assessment. The child would also be legally responsible for paying for all maintenance and repairs of the property. In addition, should they wish to buy their own home in the future, they would be treated as owning two properties which could have significant Stamp Duty Land Tax and Capital Gains Tax consequences.
With regards to Inheritance Tax, there is a common misconception that transferring ownership of your home to your children would take the value of the property out of your estate when calculating any Inheritance Tax payable as a result of your death.
Despite the treatment of the house as legally belonging to the child, if the parent has retained any benefit from the house, such as living in it or receiving rent from it, this gift will then fall foul of some anti-avoidance provisions known as the “Gift with Reservation of Benefit” rules. When reporting to HM Revenue & Customs, Executors or Administrators have a legal duty to disclose any such gifts, and the value of the asset given away is added to the value of the individual’s estate for Inheritance Tax. This of course entirely undermines any intention of the parent to save Inheritance Tax.
With regards to paying for care, if an individual makes a large gift shortly before undergoing a financial assessment for care fees, this will almost inevitably be caught by the “deliberate deprivation” rules. If a local authority decides that you have deliberately deprived yourself of money or an asset with the intention of avoiding paying for care fees, this can result in the local authority treating you as still owning it (even though you have given it away) and including its value in their financial assessment.
Of course, there are circumstances in which a transfer of this kind could be beneficial to all parties, but it is important for each to obtain independent legal advice both before and during the transaction.
At Barrett & Co we offer an initial fixed-fee one-hour consultation for just £95.00. If this is something you are interested in, please call us on 0118 958 9711 or contact us by email on [email protected].
Get in Touch
Jane Whitfield can meet with you to discuss your personal circumstances, your options and your next steps. This would normally take place in our office in Reading, Berkshire. During the coronavirus situation, however, all of our meetings are currently being carried out either by telephone or by video link.
If you would like to meet with Jane, please telephone the office so that an appointment can be made for you. If you would like to take up our offer of a one-hour £95 fixed fee meeting, please click for more details.
Jane is a Solicitor specialising in Private Client matters. Jane is a qualified Trusts & Estate Practitioner with STEP (Society of Trusts & Estates Practitioners) and a fully accredited member of Solicitors for the Elderly, as well as being a Dementia Friends Champion. Jane is also President of the Berks, Bucks & Oxfordshire Law Society.