Well intended but perhaps not the best step to take...?"
House property values have risen across the country over the last 20 – 30 years.
Whether wanting to help a younger generation climb the property ladder or looking to minimise liability for care home fees, many clients are now contemplating transferring the family home out of their ownership.
Whilst perhaps well intentioned, the reality of gifting a home can often lead to unwelcome consequences.
Many parents plan to gift the family home to their children yet still continue to live in it. HRMC will regard this as a “gift with reservation of benefit”. As a result, so long as a benefit in the home is retained, the value of the gift will still be included as a part of the parent’s estate on death and therefore there will be no inheritance saving as a result of the transfer.
Parents who live on in the family home after the gift has been made are wholly reliant on the new owner’s goodwill. There are regrettably too many instances where we see a well-intentioned parent being “evicted”, perhaps as the result of a divorce or bankruptcy of the “child”.
If a “child” has been gifted the family home but then pre-deceases the parents, the house will form part of the “child’s” estate. Once again the well-intentioned parent could find themselves at the mercy of a less than sympathetic, unconnected third party.
With care home costs such a major concern, many clients understandably want to consider potential means of minimising these huge fees. All must be warned, however, that a gifted house to a family member is not necessarily the answer. Should a Local Authority believe that the gift has been made so as to avoid the payment of nursing home fees, it can ignore the gift completely and include the house value in the financial assessment carried out. In certain cases the costs may even be recoverable from the recipient of the gift.
All is not lost, however, and there are still many ways open to parents to estate plan efficiently and effectively and also help the younger generation onto and up the property ladder.
The key to successful planning is proper advice at an early stage before embarking upon any property transfers. Exercise caution and ensure in so doing that everyone is well protected.
Pat Gray, Partner