Signing over family home

[NameChangehouse]

NC for this.

I’ bought my first home a year ago, which I live in with my DP.

However, my DM is 60 and wants to sign her home over to me, which she will remain living in. She plans to do this to avoid potential inheritance tax in the future and so she doesn’t have to sell the house to pay for potential care home fees.

Is this a good plan for her?

Has anyone else done this?

It won't work, I think they'll count it as tax avoidance. I'd get a solicitor for advice.

Agree.

If it's over IHT amount, could she transfer half to you and retain 50% ownership to give her some security and choice in care provision if she needs it as she gets older?

There might not be inheritance tax but isn't there a second home tax when you came to sell?
Plus any major debt in the future and the house could be repossessed... your mum could live another 30+ years and you would own two homes that whole time. If you divorced would your ex have a claim? You need a solicitor to answer all of this.

It won't work.

The authorities are wise to this.

If you are deemed to have done this to avoid care home fees the fees will be calculated as if you still owned your home.

www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/deprivation-of-assets/

No dice I'm afraid.

So sorry, I forgot to say. The house is worth around £100k, if that’s relevant!

I’m not married, but in this instance I’d put a Deed of Trust in place beforehand anyway

As well as the issue of being accused of deprivation of assets, she would need to pay rent to you whilst she lives therev(market rate) which you would need to pay tax on. A house of that value would not attract out when she does so it’s just the care home fees you are potentially avoiding but as others have said, you could get caught out.

You absolutely can do it but there will be tax implications is all. It will become liable for capital gains tax should you sell it as it's your second home..you are effectively your mum's landlord. Also check for things like any stamp duty that would be liable. Depending on how much the house is worth, it may not be subject to much IHT but it's more the issue of future care fees if your mum needs them.

I know it's frustrating on one level but we no longer live in a world where we can expect cradle to grave excellent care from the NHS and must accept that where possible, those who can contribute to their later life care do so. If you do this, your mum would be reliant on whatever care package she gets or you'd have to sell it at that point to pay for better care.

Oh and check out your legal status on that house ownershio should you marry. if you wanted to retain sole ownership you'd have to set it up very carefully.

She’s mortgage free. I don’t want her to pay me rent anyway!

Thank you. That’s very helpful!

If her house is only worth 100k, does she even have enough assets to pay inheritance tax on? However if the house is your 2nd home, you’ll definitely have to pay capital gains tax on it when you come to sell.

If it’s to avoid care home fees, that’s just a bit…urgh.

My only concern would be deprivation of assets. She’s old enough that it will considered to have been done with care costs in mind.
We looked into signing MILs house over to BIL as he was a vulnerable adult and had never lived elsewhere and we wanted to be sure he always had a home. We were advised that as MIL was approaching 70 that we were clearly doing it to avoid paying care fees.
We were told that if a dependent adult above the age of 60 lives in the home it is disregarded for care costs which eased our minds sadly BIL died in his 50s and MIL is still going strong at nearly 90 so it hasn’t been an issue.

Unless she has a massive amount of investments, she currently falls outside IHT thresholds.

If she did it, she would need to pay you rent otherwise its a benefit in kind, and you would pay CGT when you sell (and who knows what rate that will be after the Budget?).

If it is to avoid care costs, she's just going to have to suck it up like the rest of us. LAs are wise to avoidance and will claw it back.

If she needs care in say 20 years this might work out.
If she doesn't you will pay more in CGT when you sell the property v no inheritance tax as it doesn't meet the threshold.

If you don't pay care costs you are at the mercy of the local council and have no choice in placement.

So it's a gamble.

For a house worth £100k, unless your mum has another £225k cash or assets, there will be no inheritance tax to pay.

For care, the LA will go back 7 years so have a think if this will be a problem.

Also, think about any second home implications (I'm not familiar with this so can't comment).

Personally I'm all for it, we pay enough bloody tax in this life, over and over again for the government to squander. If you can legally avoid paying tax as the little man, I think it's great. Big corporations get away with it after all!

But legally if this is to have any effect for tax purposes, she has to pay market rent.

Otherwise it’s a ‘gift with reservation of benefit’ and doesn’t ‘count’.

Also, as people say,

1. The transfer will be ignored and the value of the house taken into account if she needs care.
2. With a £100,000 house she’s unlikely to fall into the inheritance tax bracket anyway.

If she has enough other assets that inheritance tax will be due on her estate, it would make more sense for her to give you some of those assets free and clear.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04071

Your mum is proposing to put her security in later life at massive risk to avoid a tax she (or rather her estate) won't have to pay. The whole proposal is idiotic.

But she will make you eligible to pay CGT when you come to sell the house she has gifted to you.

Why don't people do the slightest bit of research before comming up with these half assed tax avoidance wheezes.

My friends mum did this. She owns a third, and both of her daughters have a third each. It was a long time ago. She was probably late 50s/early 60s. All done by a solicitor, perfectly legal.
Our house is in a deed of trust for our son.

It’s not an out whether you want her to pay rent. In order to support the idea that this whole arrangement is not a massive tax dodge (which it is!) then you would need to charge her market rent.

edit to add - given iht is probably not payable anyway it’s more of a ‘care home fee dodge’ I guess!

So, you will be her landlord, have a good look at all the legal implications of that. Note: many are currently getting out by selling the houses they let out

What if she re marries, and then divorces, or dies before making her will, could be an unholy mess if you look at intestacy rules for inheriting.

What if you marry, and divorce , your husband will have a claim if the marriage is of a decent length, which it could be as she is only 60

Tax implications when you sell your second home

What if you die before her ? And your kids hate grandma and sell the house from under her ? Or move in with her, and bring all their mates with them ?

There is so much that could go wrong with this, I think she is bonkers to try to do it and you are even more bonkers to encourage it

People are misinformed & pointlessly terrified of inheritance tax. Only 4% of estates are affected by it. Your mum’s house is nowhere near attracting inheritance tax. The plan won’t save her from care home fees IF she ever needs to pay them either. Only about 10% of people aged over 85 live in care homes.

You can inherit £500k from your mum before any IHT is due, if it includes her house or her share of house.

You would have to pay Capital Gains Tax when you eventually sold, a hefty whack which could be entirely unnecessary if the house was not subject to IHT anyway, and if, like the majority of older people, your Mum does not go into a care home.