Under current legislation, your ability to pay for your own social care in later life, should it be needed, is means-tested.
The value of your home may be taken into account for this, so to avoid this eventuality, some people choose to make a gift of the home to a relative instead. This deed of gift needs to be done in the right way to ensure that the property is protected.
Key things you need to know
As the rules stand, it is possible to avoid charges by gifting your house, either directly to your family, or into a trust. Whilst this might seem like a good idea for you, gifting a house isn’t always straightforward and, at Spratt Endicott, our experts can make sure that you are aware of the issues and put the right structures in place.
Income support regulations, combined with social services charging regulations, abide by the ‘deprivation rule’. The deprivation of assets rules are there to stop people from intentionally reducing their assets to directly avoid care fees. If this is judged to be the case, when calculating income support and any costs charged by the care home, the authorities will treat you as if you still own the property for the purpose of calculating how much you’ll need to pay.
You can be forced to leave your home because you no longer own it. The donee of the property, for example, your children, may not control their assets in certain situations, such as
The death of one of your children (when they have not named you as one of their beneficiaries).
The divorce of one of your children (your property could be given as the asset in a divorce settlement).
The mental incapacity of one of your children (their deputy may then require ownership of your property for the benefit of your child).
If one of your children goes bankrupt.
Are there any tax disadvantages?
Because everything is prearranged, and you are gifting away the property, but continuing to live in it, the gift won’t have any favourable inheritance tax effects (in the way that other gifts do)
Normally, when a person sells a property that they are living in, there is no capital gains tax. However, once the property has been gifted, the people living in it will no longer be its owners, which will mean a capital gains tax on an eventual sale.
Capital gains are usually wiped out completely on a person’s death, but if you die and the property is no longer yours, then your death will not wipe out any capital gains tax due on it.
Our experts can advise you fully on the tax aspect of any gifts that you are planning.
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