Fact Sheet: Transferring my home to my children to avoid paying home fees

As the cost of home fees is significant, many people want to know how they can avoid selling their house to pay for long term care. By transferring their home to their child, or children, they hope to safeguard their children’s inheritance.

  1. What issues do I need to consider before transferring my property?
  2. Can the local authority clawback money from my property after I have given it away?
  3. What are the tax implications of giving away my home?
  4. Can I get money from my home without selling it?
  5. What should I do if I wish to go ahead and give away my property?

1. What issues do I need to consider before transferring my property?

There is nothing to stop you from transferring your home to whomever you like but you must consider the following issues before the transfer has taken place:

Divorce

If you transfer your property to a child who then divorces, their share of the property may form part of any divorce settlement. This may result in the property which you are still living in being sold, or a mortgage taken out against it. An alternative arrangement could be where one divorcing party agrees to pay off the other.

Loan

The person(s) to whom you have transferred your home may use their interest in the home as security for a loan. If repayments are not made, the lender could take action against the property to recover the money owed.

Bankruptcy/insolvency

If the person to whom you have transferred your home becomes bankrupt, the trustee in bankruptcy would certainly call in their assets, which would include their interest in the property. If the person is in business, the likelihood of bankruptcy increases.

If you yourself became bankrupt within a period of 5 years from the date of the transfer of your property to someone else, which is a gift, the trustee in bankruptcy can apply to a court for an order to reverse the gift.

Your welfare

You may reach an age whereby you need care, whether or not that care is provided for you at home or elsewhere. You may be keen to prevent the capital in the property from being spent on home fees, but do you really want to be left at the mercy of the local authority, when the cash from the sale of the property may provide you with a great deal of comfort?

Wills

If you transfer your property to a child, you need to think about the possibility of that child dying before you. If this happened, his/her entitlement forms part of their own estate and will be given to those beneficiaries named in that child’s will, or if there is no will, to their next of kin.

2. Can the local authority clawback money from my property after I have given it away?

Local authorities are becoming increasingly aware of the fact that home owners are transferring their property to members of their family with the sole intent of avoiding the payment of home fees. They treat these transfers as a deliberate deprivation of assets. If there are other reasons for transferring the property ie tax planning, then this may rebut the above intent.

3. What are the tax implications of giving away my home?

Inheritance Tax

Inheritance tax is paid when a person’s estate exceeds £312,000. Tax at a rate of 40% is paid on the amount which exceeds this figure.

If you continue to live in the property after the date of the transfer of your property, the total value of the property on your death will still remain a taxable asset within your estate, even though you have given away your rights over it.

You need further advice if your estate is taxable.

Capital Gains Tax (CGT)

If your children already own a house which is their main residence, then on the sale of the property, their sale proceeds may be subject to Capital Gains Tax (CGT):

4. Can I get money from my home without selling it?

Safe home income plans

If you transfer your property to someone else, you can no longer use it to generate future income for you. There are insurance plans which allow the older generation to borrow against the value of their home whilst they are still living in it. This can provide you with an income whilst preserving something to pass on to your children.

5. What should I do if I wish to go ahead and give away my property?

People often leave the decision too late. To transfer your property you should:

    • not leave the decision until the time it becomes inevitable you will need some sort of care
    • consider using a trust. It is argued that if you place the property into a trust which contains powers to permit you to continue to reside there, then you are not actually depriving yourself of anything. The consequence is that the local authority may find it more difficult to argue that you have deliberately deprived yourself of your property

Quite how this would stand up in court we do not know because as yet there have not been any test cases.

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