Gifts of Homes

Some of our clients wish to avoid paying a charge to Social Services should they ever go in to care. To try and do this, many clients seriously consider making a gift of the homes they live in, often to their children.

What you need to know

With the rules as they stand, the property can be protected from a Social Services charge, by making a gift of it - either directly to your family or into trust. You should however understand that there are:

  • At least three reasons why such a gift might prove ineffective
  • At least four major risks that you take

Remember, there is no point at all in trying to protect your home if you've got other substantial assets that Social Services can "grab". 

Why a gift might not work

There are three circumstances in which the gift might prove ineffective. They are:

  1. If you go into care within six months of a gift, then the recipient of the gift (that is, either your family or the trustees) will themselves be liable to pay for any care you receive - up to the value of the property gifted.  If this rule applied, then the gift would have had no positive effect whatsoever

  2. The Income Support regulations and the Social Services charging regulations both contain a provision known as "the deprivation rule". This means they will treat you as if you still own any property that you have given away, for the purpose of calculating Income Support, or contributions to your care in a home

    In the past, this rule had not been interpreted so strictly as to refuse care to a person needing it. However, local authorities are cutting back. There has been a test case where Social Services stopped a patient's funding altogether, and the courts upheld their right to do so.  This is a very real risk

    When working out whether the deprivation rule applies, the DSS or Social Services will look at your motive in gifting the property.  The fact that you've read this article could be enough evidence, by itself, to make you fall foul of the rule

  3. Social Services could make you bankrupt if you are receiving care at Social Services expense, and you cannot pay for yourself because you no longer own the house. If they do so then your "Trustee in Bankruptcy" is entitled to go back to gifts you have made in the past, and have them "set aside". 

    This means that the property would become part of your estate again and Social Services could charge it.  

    In our experience this rarely happens in practice, but the threat is often used as a bargaining counter to encourage families to contribute towards their relatives' care

Remember, items two and three above don't necessarily have time limits attached.  Social Services often used to say that they’d ignore gifts which were more than five years old (because one of the time limits in the Insolvency Act is five years).

However, as a result of the test case mentioned above, they will be prepared to refuse care however long elapses between the gift and the patient entering care.

What other risks are there in making a gift?

The main risk of gifting a property directly to your children is that your children may one day decide to push you out of the property into a nursing home (or somewhere else) so that they can sell the house. 

Many people do not see this as a great problem, believing their children will always "see them alright". You should always remember that:

  • Firstly people don’t always live up to your expectations of them
  • Secondly, there are four circumstances where the matter would be taken out of your children's hands, and put into the hands of someone else (possibly a professional with a different agenda). These are:
  1. The death of one of your children (who have almost certainly not named you as the beneficiaries of their Wills)

  2. The divorce of one of your children (in which case your property could be considered an asset in someone else's divorce settlement)

  3. The mental incapacity of one of your children (in which case his or her Receiver might require their interest in the property for the benefit of the patient)

  4. The bankruptcy of one of your children (in which case the house would almost certainly be sold by the Trustee in bankruptcy, one year from the date of the bankruptcy order).

Are there any tax disadvantages?

  1. Because you are giving the property away and then continuing to live in it, the gift won't have any favourable Inheritance Tax effects (in the way that other gifts often do)

  2. Gifts of this kind cause the asset to be considered part of the recipient's estate (either the trust's or the children's) as well as yours.  With an outright gift to your children, if either you or they were to die then the property would be charged to Inheritance Tax

  3. Usually there is no Capital Gains Tax when a person sells the property in which they live.  In your case however, once you have made the gift the people living in the property won't actually be its owners, and accordingly there is likely to be Capital Gains Tax on an eventual sale

  4. Capital Gains are usually wiped out completely on a person's death.  If the property is no longer yours, however, then your death will not wipe out Capital Gains on it.

Getting in touch

To find out more about Wills and Grants of probates, please contact David Endicott on 01295 204005 or email dendicott@se-law.co.uk.