Guides & Advice

Five things to consider before giving away your home

There are many reasons why you may consider transferring your property from your name into that of a relative, such as a child or grandchild. As your home is one of the most important assets you own, it is vital that you understand the implications, as well as the benefits, in order to make an informed decision that is right for you. 

Here we highlight the top five things to consider if you are thinking about giving away your home. 

1. What are the reasons for wanting to give away your home?

If you are considering giving away your home to avoid care costs then you need to be aware of the implications - you cannot intentionally reduce your assets to avoid paying care home fees. 

If in the future you require residential care, the local authority will assess the extent of that need (i.e. for nursing or residential care) and would consider if you are eligible for financial assistance with care fees. Where your income and capital is below a certain level then you may be entitled to a contribution from the local authority to help pay for the fees.   

However, if you have reduced your capital by giving away your home, or other assets, to your children or other relatives, the local authority may disregard this transfer as a deliberate “deprivation” to avoid paying care fees. They will make an assessment on whether you were fit and healthy at the time of giving away your home and therefore could not foresee needing care and support. There is no set time limit between making the gift and needing to move into care.  

2. Are you planning to continue living in your home after you give it away?

If so, you should consider the various tax consequences for yourself and for the recipient of the asset, as transferring your home to someone else could give rise to various tax consequences for inheritance tax as well as capital gains tax. 

Inheritance Tax 

Inheritance tax may be payable on your death on assets including savings, investments and property over £325,000 (the “Nil Rate Band”). Tax is payable on the amount over this figure at 40%. 

If you give away your home during your lifetime it will still be included as part of your estate, if it was given away within seven years of your death. Read more about what other lifetime gifts are exempt from inheritance tax.

Additionally, if you transfer your home to another (such as your children), and continue to live in the property until the date of your death, HMRC may treat this as a ‘reservation of benefit’, even if the seven year period has elapsed.  This could be avoided if you pay a market rent to the new owner of the property, although this may then have income tax consequences for that individual. 

Capital gains tax

There is no capital gains tax payable on any gain (if any) when you transfer the ownership of your main residence. However, if it is a second home, capital gains tax is payable on any gain from first acquisition to when it is given away, even if no money changes hands.  

Also, if the person you transfer the property to then disposes of it in the future, then they may liable to pay taxThis is because they will acquire the property at the current market value at the time of transfer, and so any gain made on disposal may be liable to capital gains tax. Therefore, it is vital to have the property valued at the time that the gift is made. 

Read more about how personal tax planning can protect your wealth and help you and your family to make the most of it.  

3. Is there a risk of the recipient divorcing or becoming bankrupt?

If you transfer your home to a person who is married, or who later marries, your home could be made part of a financial settlement if they were then to divorce. As a result, their ex-spouse may have a legal claim on the house and could dispose of it in a way in which you do not approve.

The situation is similar if the person you transfer your house to becomes bankrupt later in life. The trustee in bankruptcy could have a claim on your home in order to sell it and satisfy various creditors - resulting in the loss of your home.

4. What happens if the recipient dies before you?

Once you have transferred your home, it no longer forms part of your estate and therefore cannot be included in your will. To ensure that you don’t lose your home if the recipient of the property dies before you, you need to ensure that you are provided for in their will. Read more about the importance of making a will. 

However, if they don’t update their will in a timely manner, and die before you, then their interest in the house will pass under their will. If they don’t have a will in place then the property will pass under the intestacy rules 

In either circumstance, the ownership of your home may pass to someone you did not intend. 

5. What happens if you ‘fall out’ with the recipient?

Many families experience conflict and discord at some point, and if you decide to transfer you home to a member of your family, complications may arise if you later have a disagreement with them. 

A gift is irrevocable and absolute. So once your home has been legally transferred to your family, you will need their consent for future dealings (for example, to transfer it back) and you may have no legal right to live there if none were agreed at the point of the initial transfer. Therefore, in certain circumstances following a disagreement, your family may be able to force you to leave your own home.  

Deciding to give away your home

If you’ve considered the benefits and implications of giving away your home and have decided that it is the right decision for you, then we can help.  

Our private client team will support you and guide you through the process of giving away your home, ensuring you protect your current wealth to provide you with a secure future. 

Call us on 0330 024 0333 to find out more about what we can do for you.

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