One of the frequent questions I get asked as a Solicitor is whether a parent should give their home to their children. My clients have many reasons in mind as to why they might want to do this from ensuring the house passes to the children to attempting to avoid paying for care or just getting the children to take over responsibility for the property so they don’t have to worry about maintenance issues any longer.
Providing you have no mortgage on your property, you are at liberty to gift your home to your family if you want to do so. But there are a few issues you may need to bear in mind before making that decision:
You will no longer be the legal owner of your home
If you gift your home, you need to consider the possibility that your child may divorce. If this happens, they may be forced to sell your home as part of those proceedings. Equally, your son or daughter’s ex-spouse would have a legal claim against their estate, which would also include your home.
If your child has financial problems and had an issue with bankruptcy, your home would form part of their estate. This could then potentially be claimed by creditors seeking to claw back money from their estate.
If your child predeceases you, their beneficiaries would then become the owner of your home.
If you wanted to obtain equity release on the property, you would be unable to.
If you needed to release some equity from your home, perhaps to help pay for adaptions if your health needs changed, you would not be able to do this. As you wouldn’t own the property, you can’t take equity release on it.
You need to consider Inheritance Tax
You may think that if you transfer your home to your children, then it won’t form part of your estate for inheritance tax purposes should you survive 7 years after making the gift. Unfortunately that is not the case. Due to the reservation of benefit rules, if you “give” away an asset that you continue to use, it is still treated as part of your estate for inheritance tax purposes. By gifting your property to you children during your lifetime, you could also lose the new residential nil rate band allowance as well.
You need to consider Capital Gains Tax
Before gifting your property, you also need to think about other tax, such as capital gains tax. This applies where a property is not a “principal primary residence” and could apply if, for example, your child is not living in your home when it is transferred into their name but has increased in value when they come to sell it.
Will I avoid care home fees?
You need to tread carefully before passing your home onto your children for this reason. The Local Authority could view this as “deliberate deprivation of assets” to avoid having to pay residential care home fees.
Put simply, transferring your home to your children in this way may be seen as an attempt to conceal funds to avoid paying for care.
If this is deemed to be the case, the Local Authority can reverse the transfer of ownership back to you or they can include the value of the home in your financial calculation anyway but including it as “notional capital”.
So gifting your home involves a number of considerations and a decision to do this should not be taken lightly. I would recommend seeking advice from a specialist Solicitor about these issues beforehand.
Adam Penn is a private client Solicitor with many years experience and can be contacted on 01543 440 308.