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?

If she continues to live there after she signs it over she is liable to iht

I've just been with my dmum to redo will and set up POA. (Scotland)

We were offered the choice to put the house in a trust. This means the council 'may' not claim care fees against the house if it's in a trust, no guarantee though as many have gone through court to fight it.
Lawyer claimed they had won every case that had gone to court so far.

It wasn't cheap and dmum decided not to esp as not guaranteed.

Thank you. You’ve all been extremely helpful

You need proper legal advice.

My Dad did this by putting his home in the names of my sister & I in his 60s.

When we sold it we had to pay Capital Gains Tax on the amount it appreciated from when we became the legal owners to when it got sold. But we didn’t have to pay inheritance tax.

We did get proper advice so we all understood the legal implications. For example he had to trust us that we wouldn’t sell it while he still needed it which we were legally able to do.

You can currently inherit 500k without paying inheritance tax from your parents, subject to any changes like with any other tax thresholds.

You would actually make yourself liable for capital gains tax if the property appreciated from the signing over to when it was sold.

Unless someone needs nursing care then I do not see why the state should pay for care fees if you have assets and I say this as someone who would absolutely get shafted due to assets if I need care and my DS would lose out on a substantial inheritance.

DIY tax avoidance - what on earth could possibly go wrong?

I suggest your mum stops worrying about tax she almost certainly will not have to pay and enjoys her retirement secure in a mortgage free home that she owns. FFS she is only 60, she could have another 30 - 40 years of life yet and a lot can change in that time.

If this was a straightforward way to avoid tax everyone would be doing it, wouldn’t they?

For this value which will not attract iht the solicitors fees and cgt may be more than anything saved. Stop worrying keep in her name have her do her will.
If she needs to fund care fees see what happens then.

If the house is only worth £100K then IHT wouldn’t be due unless she has a huge amount of savings/investments.

Not worth the hassle OP.

Only about 4% of the nation in the Uk pay IHT.

Very few estates are liable for inheritance tax. It's unlikely that you would be liable in these circumstances.

Regarding care home fees, I suggest you look at a home which accept council funded residents and a home that doesn't.
Self funding gives you options, in my experience most homes require a financial top up too.

My husband inherited his father's flat when he died 30 years ago and rather than sell it, he let his mum live in it rent free until she went into assisted living accommodation three years ago (his parents divorced before his dad bought the flat). The value of my late father in law's estate was well below the inheritance tax threshold, but when he sold the flat, my husband had to pay a significant amount in capital gains tax.

If the value of your mums house is £100,000 and she doesn't have huge savings, she will be below the inheritance tax threshold, but if she transfers the house to you, you will be liable for capital gains tax on any increase in value of the house from the date you own it until the date you sell it. As other people have said, there is a chance that there could be an issue over deprivation of assets if your mum needs to go into care in the future but she's only 60, so she could well have over 20 years until she might need care, and most older people don't end up in care homes anyway. I think it's a difficult decision to make, and different councils go back for different periods of time when they are looking at deprivation of assets. In my mother in law's case, no-one ever questioned thst she was my husband's tenant or asked for any proof thst she had never owned the flat she lived in.!!

There’s nothing illegal in doing this, but the financial impact can be significant. The friend and her sister will end up with a significant CGT bill once their mum dies and they sell the home. As a rough example, a property worth £100k when it was gifted to someone who didn’t live in it, which is now worth £300k, could mean CGT of £50k+ when it is sold.

This. There’s nothing illegal about transferring a house you want to live in to your children.

It’s just usually stupid because instead on the recipient paying no tax because the property value is less than the nil rate inheritance tax band, they end up paying huge amounts of CGT.

Since the transfer can be disregarded for care home fee purposes (and there is no 7 year limit on that - I think the PP was confusing it with gifts to avoid inheritance tax which doesn’t work either if the donor keeps living there), it’s worse than useless as it positively disadvantages the recipient.

Add in the fact that the house is an asset that prevents the recipient getting certain benefits, is a marital asset if he/she gets divorced, can be seized if they ever go bankrupt (and probably more drawbacks I haven’t thought of) and it can be seen this sort of transfer is usually a bad idea.

https://www.independentage.org/get-advice/health-and-care/paying-for-care/giving-away-assets-to-pay-for-care#:~:text=There's%20no%20time%20limit%20on,has%20been%20deprivation%20of%20assets.

Edited to say: Usually a bad idea. If a highly qualified financial advisor explains good reasons for doing so (and these reasons don’t include ‘I make loads of money for sorting the transfer / setting up a trust), there may be circumstances where this makes sense. I just can’t think of any.

I think deprivation of assets is a bit of a red herring with the parent of @NameChangehouse only being about 60. We had no issues with that at all and I've never heard of people having trouble with parents in their 60s giving away assets as gifts. My PIL even gifted a house to their daughter in their 70s with no questions asked re deprivation of assets and that was a long time ago now. Of course they may regret it if end up needing to go into a care home in their 90s and can't afford private ones but that was their choice. It is a perfectly legal thing to do whether or not you agree with the morality of it. I believe deprivation of assets comes into play more when the old person is already on a clear path to needing to go into care in the not so distant future.

However, it may not be the best option for @NameChangehouse as many people have pointed out which is why you should always get legal advice as everyone's situation is different and for some people it won't make any kind of financial sense to gift a house to your adult children whereas for others it will do.

If you have it for 7 years before she needs care/dies then it might work.
If it's not your home/a second property, you will have to pay capital gains tax on the diference between the value when it's transferred to you (make sure you have at least 2 valuations) and the sale price.

1. If she keeps living in it and doesn’t pay full market rent it’s a gift with reservation of benefit and ‘counts’ as part of the estate for IHT purposes.
2. There is no time limit on claw back for care fees and councils are becoming increasingly proactive in looking at things like houses in trust - if the OP’s mother can’t show some other good reason for the transfer, they will count it.