Many families wish to ensure that their family are provided for in the future. They have worked hard to be able to own their property and do not want their estate to be exhausted by paying care costs. Beware – there are many things to consider before taking such steps.
1. Should you require a move to residential care accommodation the local authority can look at assets you had previously, the time of gifting and the reasons for gifting. There is the potential that a gift of a property to children or grandchildren could be considered by the local authority to be a deliberate deprivation of capital. This means the value of the property could be taken into account when calculating care cost contributions. Should the transfer of property be within 6 months of your move to residential care accommodation the value of the property will be considered to be part of your estate.
2. Should you die within 7 years of the gifting the value of the property will fall back into your estate for Inheritance Tax (IHT) purposes and will be considered as a Potential Exempt Transfer (PET). This means the value of the gift (in this case the value of the property) is taken account of when calculating the value of your estate on death.
3. The gift may be considered to be a gift with reservation of benefit. Should you transfer the house to your children but remain living there rent free this will be considered to be a gift with reservation of benefit. A gift with reservation of benefit would be looked on as a deliberate deprivation of capital by the local authority. Again, as part of the tax rules, the house would be considered to be part of your estate on death. One way of avoiding the transfer being considered a gift with reservation of benefit would be to pay a rent (although this should be the market rental value). Your children would be liable to pay tax on any income from the rental of the property.
4. In the event of a family fall out or should your children decide they wish to sell, rent or move into your home you could be evicted.
5. Should your children divorce their spouse would have a legitimate claim on the house.
6. Should your children have financial difficulties i.e bankruptcy the house forms part of their estate and creditors could go after the property.
7. Should you outlive your children the house forms part of their estate and their beneficiaries will own the property.
8. Should your children already be home owners they will be liable to pay Land & Buildings Transaction Tax (LBTT). This is a supplement on second homes and is currently charged at 4%.
9. Capital Gains Tax (CGT) – this relates to your children rather than you. Should the value of the property increase after transfer they may be liable to pay tax on it.
10. There are legal costs for the transfer of the property.
When considering these steps it is important to remember that although we have a population who are living longer, you may never require to move to care accommodation. Should you require to move to care accommodation and you have dissipated your assets you may have no choice as to what care home you live in.
Should you require any additional information on care costs, planning for your future by preparing Wills, Powers of Attorney or Advanced Medical Directives please do not hesitate to contact a member of our Private Client Team who will be happy to assist.