It is quite common these days for couples to consider transferring ownership of their home into the name of their children, even if it is the couple themselves who will be living there.
Often the reason why couples decide to transfer their home is because they think that it will preserve the family inheritance by avoiding the need to pay for the likes of residential care and inheritance tax.
However, this can be a very risky strategy, and the supposed benefits are outweighed by a number of potential pitfalls. Below are some points for you to consider when contemplating such a decision:
Financing Residential Care
While the ownership of your home may have been transferred, with regard to financing care in a residential care facility, the value of the house may still be taken into account, as the local authority could deem you have transferred your house to escape charges, in what is known as a ‘deprivation of capital’.
Additionally, if fees for a residential or nursing care facility need to be paid and a home cannot be sold to cover such costs then money will have to be found from elsewhere to pay for the level of care you want. The local authority may only finance a basic level of care, which can often mean you being given a place in a home of their, rather than your, choice.
Loss of Ownership
Transferring the property to your children while you are still living in it does carry risk, as it then becomes part of your children’s estate. If they fall on hard times and are declared bankrupt or if they divorce, your home will form part of their total assets and a sale could be forced.
If your child dies prematurely without making proper provision for the transfer of your home through a will, it may pass to their spouse and could be lost to your family if they re-marry or bequeath the property to someone else in their own will.
If your children ever needed to rely on means-tested benefit, for example through unemployment, they will not be able to make a claim as their interest in the property cannot be disregarded.
Furthermore, you are completely reliant on your children ‘doing the right thing’ and letting you live in the property rent-free for as long as you wish.
Tax
If you continue to live in the property after it has been given away and you do not pay rent to your children for the privilege then your home will be treated as part of your estate for inheritance tax purposes and there will be no tax saving.
With regard to Capital Gains Tax, when the property is eventually sold your children would be liable to pay CGT on any increase in its value between the time it is acquired to the time it is sold.
While transferring ownership of a home is often viewed as a way to potentially limit or bypass financial obligations, in practice, this should not be done without seeking expert advice. There are a number of options which may be available as an alternative, such as putting a property into a trust, but similarly this should only be done having taken advice.
