Gifting Property to Children

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. Their home is often made into a gift for their children or another relative. 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 social services 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, we want to make you aware that there are at least four major risks associated with gifting property. Another point to note is that if there are other assets, over and above the property that you want to gift, that remain in your possession, it may be the case that these are taken into account instead to pay for the social care.

Is gifting property a good decision?

There are three main circumstances in which gifting property may prove ineffective rather than beneficial. We have listed them below for you to consider before you take action towards gifting a property.

  • If you go into care within six months of gifting a property, you leave the recipient of your house liable to pay for any care charges, which can be up to the amount of the value of the property that was gifted. If this rule of gifting property is applied, then the deed of gift will have no positive effect whatsoever.
  • 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. In the past – this rule has not been particularly strict on those involved in gifting property, with a patient in need of care never really being refused. However, many local authorities are cutting back and if social services refuse your care, it is likely that the court will uphold their right to do so. This is a very real risk when gifting property. First of all, social services will need to work out whether or not the deprivation rule applies to you and to do this they will look into your motive for gifting the property; even reading this article could be evidence enough for them to suspect your motives.
  • There is also the risk of bankruptcy when it comes to deed of gift, even when it comes to gifting property to children, because social services can charge you care costs which you can no longer afford to pay, because you don’t own the property anymore. This does, however, allow your ‘trustee in bankruptcy’ to go back to gifts they have received in the past and have them set aside. This will mean that social services are technically allowed to charge for it as it has returned to your care.

What other risks are associated with the deed of gift?

The main risk associated with gifting your home directly to your children is further down the line your children pushing you out of the property and into a nursing home so that they can sell the property. Of course, most people don’t consider this a problem, trusting that their children will act in their best interests, but there are four circumstances where, after gifting property to your children, the matter would be taken out of your children’s hands. These are as follows:

These are as follows:

  • 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 receiver may then require ownership of your property for the benefit of your child).
  • If one of your children goes bankrupt then it will most likely be sold in bankruptcy (one year after the bankruptcy order).

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 tax effects (in the way that other gifts do).
  • When the property is gifted, it is then considered as part of the recipient’s estate as well as part of your own. Therefore, if either you or they were to die, the property would automatically be taken into account for inheritance tax, if applicable.

  • 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.

Getting in touch

To find out more about gifting a property or the deed of gift, please contact Lucy Gordon on 01295 204045 or email lgordon@se-law.co.uk.