In most cases, I would advise against this. As your home is arguably your most important asset, it is normally the last thing you should use use for planning.
Nevertheless, this something that I am often asked to advise on. This article explores the main aspects of the topic.
FAQs around gifting the family home to children:
What are the potential disadvantages and risks of gifting a portion of the family home to children?
You will become a co-owner of your property with your children. This may mean you lose autonomy in decisions regarding the property (e.g. whether to sell the property or regarding the renovations that you wish to make).
Unforeseen events like your child’s death, divorce, or bankruptcy could lead to you co-owning the property with a widowed spouse, an ex-spouse or a trustee in bankruptcy, potentially creating significant problems for you and a high risk of losing your home.
There is also the risk of capital gains tax and stamp duty issues for the children on the transfer of the property and on future increases in the value of the property.
Is gifting property an effective strategy for care fees planning?
Gifting a property to children might seem like a strategic move to avoid care fees, but carries significant risks and practical disadvantages. There are stringent rules in place to prevent families making any financial gain from a ‘deliberate deprivation of assets’. When assessing an individual’s eligibility for care fee assistance, authorities often scrutinise financial transactions made within a certain period before the application. If they find that assets were transferred deliberately to avoid care costs, those assets might still be counted as part of the individual’s estate. Of a more practical concern is that once you gift your property you lose control over that asset, which can complicate financial planning and even lead to unintended family disputes. Thus, gifting property to your children is not a reliable method for care fees planning and can result in unforeseen complications.
Are there other situations where gifting the family home to children might be an effective strategy?
Yes, gifting assets like holiday homes during one’s lifetime can sometimes be an effective approach. However, if you wish to retain an interest in the holiday home, that could defeat the inheritance tax planning you are seeking (this is known as a GROB – a Gift with Reservation of Benefit). There could be other tax issues arising from the gift such as capital gains tax and stamp duty land tax.
What professional advice should be sought before gifting a portion of the family home to children?
It is strongly recommended to seek legal advice to ensure that all parties (parents and children) understand the risks and implications involved. Advice on potential capital gains tax and stamp duty implications should be considered. Additionally, financial advice is essential to ensure the gifting strategy aligns with your overall financial plan and retirement needs.
How about gifting property on death – are there strategies that my spouse and I can use in our Wills to plan for care fees?
A common form of planning is the use of life interest trusts in mirror Wills prepared by married couples. This can be an effective strategy for couples whose main asset is their home. This type of trust is included in a will and allows the surviving spouse to benefit from the deceased’s share of the property or assets for the rest of their life. The surviving spouse can live in the property or receive income from it, but they do not own it outright. This arrangement helps protect the deceased’s share of the property from being included in the means test for care fees if the surviving spouse needs long-term care. Upon the surviving spouse’s death, the assets held in the trust are passed on to the intended beneficiaries, such as children or other family members.
Disclaimer: This article provides general information and should not be considered legal advice.
