Tax implications of transferring parents home into children's name

[Morley19]

Good morning

Is there anyone here that knows about the IHT/CGT/care home fees aspects of transferring parents home into children's name?

Thanks in advance

Look up “deprivation of assets”, the council can claw back money if they believe that assets were transferred to avoid care fees.

Try it if you want, council's have whole departments recovering funds where there's been deprivation if assets though. Parents need to pay market rent to live in a house they don't own.

They'll avoid IHT provided they don't die within 7 years, when it will be payable anyway.

If they're married, property is involved and it's going to DC, they can leave £1m between them without tax, for me that's enough for anyone to inherit tax free.

For me though the biggest risk though is that the children's marriages break down and the home becomes a marital asset. You'll lose more than the tax.

Not something to be undertaken lightly.

Anybody doing this needs serious legal advice tailored to their circumstances.

Thank you both so much for your replies.

I am actually an accountant but not worked in practice for SO many years that my knowledge on things is more than sketchy.

Is this roughly correct:

IHT - if they didn't pay rent (which they wouldn't) it would be treated as a 'gift with reservation of benefit' so wouldn't fall under the 7 year PET rules but instead be included in their estate at date of death. However, the house is only worth about £270k and they won't have significant other assets so, even if the value of their house was included in their estate (even if it was in my name) IHT probably wouldn't be an issue due to the nil rate band? Is that correct?

CGT - the asset would become a chargeable asset from the date of my ownership, so my base cost would be the price paid/MV at that date. If I then sold it there would be a gain at that time chargeable on me being the sale price less that valuation I took it on at. Obviously I would have CGT annual allowances to use.

Care home fees - obviously I would NEVER be trying to exclude my parents house from paying for fees at the expense of them being put in a 'crappy' care home, compared to a nicer one if paid for. But just trying to protect against all their money being used and they end up in a care home that is no better than they would have been without money. I have read about the deprivation of assets rules, there is currently no indication of care being needed but am just trying to put best plans in place. I am also aware this is an emotive subject matter, with people having differing opinions.

Any further advice/confirmation would be very much appreciated xx

It clear from you post your motivation is to avoid care home fees - I just don’t understand why you think the taxpayer should foot the bill when your parents would be able to pay? isn’t the country in a bad enough state?

The authorities are really hot on ensuring people don't do this with aim of evading tax, or deprivation to assets to avoid normal liability for care fees.

Once your parents have given their house away, then they are of course homeless and will need to move and pay full market rent (and face all the uncertainties of rental market). Are they really up for that?

You may be taxed on the gift when it occurs, plus you would pay full CGT when you sell, may face IHT if your parents die within 7 years of the gift, and of course will have to pay tax on any rental income if you decide to rent it out rather than stand empty (obvs you have to cover all bills and maintenance on the empty house)

If they continue to live in it, then it will be treated both for tax and for liability for care home fees as if the "gift" had not happened.

My MIL has given one quarter share of her to each of her three DCs and retained one quarter. This was done about ten years ago, she's in her mid 80s now and in good health. I think she did it more to avoid them having to pay inheritance tax than care home fees. Sorry I have zero clue of the legalities but it was all done through a solicitor.

The people receiving the property would also have to pay capital gains tax on it.

No they wouldn't, no tax on gifts. There might be CGT when it's sold.

The gift of the house is also treated as a disposal by HMRC, so your parents would have to pay CGT when they transfer it to you.

Its called a gift with reservation of benefit. If the house has been “given” to the children except the parents have retained use of the house, without paying market rent, then it will be seen as an attempt to dodge IHT. Don’t try doing this DIY. Get an actual qualified experienced tax lawyer to advise you. There are ways around IHT, but afaik they mostly involve the setting up of trust funds. But then, I’m not a tax lawyer. Find one who is. My father-in-law did this with his mother, and another lawyer told him that he was liable to get slugged with a bill for capital gains tax and besides it was pointless because the estate was below the value of the IHT limit anyway.

given that the limit is now around £1m the only time this is an issue is with a very large estate. If it’s that large, spend some money to protect it properly.

Thank you all.

As I said, I know it is an emotive subject and, whilst I fully respect differing views on that aspect of it, with this post I am purely trying to get the facts right on it.

Would PPR relief not prevent ant CGT charges at this stage? I do appreciate there would be a chargeable gain whilst in my ownership

thank you, that is what I was kind of getting at. With regards to IHT, due to the values involved, is it kind of a non point anyway? If ownership stayed with my parents their estate would be well under the nil rate band?

With capital gains tax it becomes more complex. If the Executor sells the property and the money goes into the estate there is no CGT as it was the deceased primary residence. My parents house was around 250 and we sold it as part of realising the estate as executors (it was 2 days from completion having already exchanged so at least we didn't have time on mkt etc to contend with) there was no capital gains to pay although the gain was only around 20k. I would speak to someone more up on it to be honest

Between them they can leave up to £1m IHT-free if their primary home is left to direct descendants.

Plus the balance of any private pension is considered to be outside the Estate so can also be transferred to named beneficiaries IHT- free.

A minority of people end up in care homes.
Not all who do use all their assets: their various entitlements, state pension, Attendance Allowance, maybe Care Allowance all contribute to the bill, so cover a % of the cost.

However the risk of you paying CGT is high. More people get divorced than go into care homes with the risk that the house is then a marital asset (I would not hand over my house to my Dc for this reason alone!).

And it isn’t just quality of home: a LA might place someone in a home miles away from friends and family.

Lastly, you are an accountant: you can research this rather than take advice, which is frequently wildly wrong, from ransoms in MN. Warning: I am. It only not an accountant but am an arts grad!

Look up IHT on the Gov.Uk website. The info is there about the combined nil rate band.

I have read about the deprivation of assets rules, there is currently no indication of care being needed

It isn’t just that though, it’s also ‘is there a reasonable expectation that care will be needed in future’. And LAs can and do pursue that.

OP has however posted that it is one of their main motivations for considering this (to reduce care home fees) so it's entirely relevant here

Sorry, re CGT, I had ignored it was their home! PPR would, of course, apply!
Its just that so many people fail to realise that giving a property is potentially a disposal for CGT

Care home fees - obviously I would NEVER be trying to exclude my parents house from paying for fees at the expense of them being put in a 'crappy' care home, compared to a nicer one if paid for

But you would willfully deprive the system of fund to provide devebt care for those who do need it?

Your stated motivation is deliberate deprivation of assets because you foresee that care home fees may be required in future and deliberately want to avoid that.

There's no other motivation for this transaction. You wouldn't be able to argue to defend this, it's completely transparent what the intent is.

The only reason you are doing this is to avoid care home fees

Thank you for your comments. As I said, my post was about finding out technically how things work, not just care home fees but also IHT/CGT (as I am very rusty on these areas), rather than discussing morally what people feel is correct. I respect everyone's differing views on this but that clearly wasn't the purpose of this particular post.

Many thanks for all of your comments/help, I really appreciate them

When they investigate the deprivation of assets how would you explain the transfer? What motivation will your parents be able to show other than avoiding care fees?

Well "technically" you're not allowed to do it.