I am often contacted by a parent or their children expressing a wish to gift the family home to the children. The gift is to take place straight away. The request can be made for a variety of reasons, including Inheritance Tax, Nursing Home fees and simplifying the passing of assets. On the face of it, it may seem like a good idea but the transaction should only be entered into after very careful consideration as there are some legal pitfalls to consider as well as practical issues.
If, for example, a parent gives the house to the children and the parent continues to live there, the gift will not work to remove the value of the property from the parents estate for Inheritance Tax purposes unless the parent pays to the children a full market rent. The scheme also does not work if the parent sells the house, and gives the money to the child who buys a house in which the parent lives.
The gift can also be problematical if the parent subsequently goes into Care and asks the state for assistance in paying the fees. Social Services may argue that the parent has voluntarily deprived him or herself of assets. This is a particularly nasty catch because the parent will be treated as if he or she owns the property for the purposes of calculating the contribution towards the fees when, in reality, he or she does not own the property.
There are also practical reasons why the gift of the property should not be entered into without careful consideration. What if the child goes bankrupt or dies or simply gets fed up with the parent living there? The parent could find him or herself without a roof over their head. Problems can also be caused not by the children themselves but by those associated with the children. For example, if the child gets divorced, the property will be added to the pot in the divorce proceedings.
The moral of the tale is always to seek legal advice before entering into the gift of your house. The last thing you want is to find that the gift has backfired on you.
If you have any questions surrounding gifting a property, or any other Private Client matter, please do not hesitate to contact me.