One of the questions we are regularly asked by clients is whether they can/should transfer their property to others (most commonly, their children) or alternatively, into a trust, as a way of either avoiding inheritance tax or having to sell the property to pay for care home fees.
In short, the answer is no.
In respect of inheritance tax, if you transfer an asset to others but retain a benefit from that asset, you will be treated as if you still own it. It does not matter how long ago the gift was made. Thus, if you transfer ownership of your property to your children and carry on living there, the property shall still be valued as part of your estate on your death – unless you were paying your children full market rent from the date the property was transferred to them.
Depending on the value of the property, it may not even be necessary to think about transferring ownership to reduce any potential inheritance tax. There are inheritance tax allowances that can be transferred between spouses or civil partners, particularly if your property passes to your children in your Will. In total, it may be possible to pass on assets of up to £1m, free of inheritance tax, under your Will.
In respect of care fees, if you need to move into a care home, the local authority will carry out a financial assessment to determine what contribution you will need to make towards your care fees. The local authority will look at any gifts or transfers that you may have made. If they can show that the reason for making the gift was to avoid those assets being used to pay for care fees, they will treat the gift as a deliberate deprivation of assets and may still include the asset in your financial assessment. Therefore, transferring your property to your children (or into a trust), will not guarantee that the property will not be taken into account, and you may need to pay care fees as if you still owned the property.
Contrary to belief, there is no time limit as to how far back the local authority can look when deciding whether there has been a deliberate deprivation of assets.
As well as your property, the deprivation of assets rules applies to other gifts, such as cash.
However, there are ways in which spouses or civil partners can prepare their Wills to protect at least a half share of the property if, after the first of them dies, the survivor subsequently needs to move into a care home.
This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP are always happy to provide such advice.
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