Thinking Of Giving Your Home Away?
For most people their biggest single asset is their home and many homeowners think about giving it away late in life in order to avoid either the Inheritance Tax (IHT) liability on the property or its value being eroded through having to pay for care needs.
It may seem attractive to give away your house to avoid these outcomes, but in practice divesting yourself of any assets should only be undertaken with the benefit of expert legal advice as there are many potential pitfalls. These are just some of the issues that can arise:
Where a property is given away with the result that its former owner thereby lacks assets from which to fund long-term care costs, it is quite normal for the local council which ends up footing the care bill to contest the arrangement.
LOSS OF IHT RELIEFS
There is a special relief for IHT called the Additional Threshold or Residence Nil-Rate Band, which extends the IHT nil-rate band as it applies to the deceased's residential property if it is passed to lineal descendants. This relief is not available when the property is gifted away before death.
Passing title is not a gift for IHT purposes if the donor still retains an interest in the asset passed. So, if you give away your house but carry on living in it, it will continue to be treated as part of your estate on death unless a full market rent is paid to the new owner, and the rent will be taxable in their hands.
There are many practical issues involved with gifting property. For example, if the property is gifted to three children, one of whom subsequently becomes bankrupt or uses their share as collateral for a mortgage on which they then default, there can be significant problems if the receiver in bankruptcy or mortgagee seeks to force the sale of the property.
There are myriad issues and potential complications in circumstances like these. If you are seeking to protect your estate from the depredations of IHT, our expert advice will help you achieve your wishes if possible.
Please note we are unable to offer legal aid.