It might sound like a simple solution, but gifting your property can have consequences that you may not have considered.
The first thing to consider is why you want to gift the property, as different rules can apply depending on your circumstances and your reasons for making the gift.
Before making such a significant decision, it is important to understand the potential consequences.
Will gifting my home avoid Inheritance Tax?
If you’re considering gifting your property to reduce the amount of Inheritance Tax payable on your estate, there are several things to consider.
The value of the property may still form part of your estate for Inheritance Tax purposes for seven years from the date of the gift. There can also be further considerations if you have made other gifts during the seven years before gifting the property.
If you intend to gift the property then carry on living there, it could still form part of your estate due to the ‘Reservation of Benefit Rules’. This is where a gift is made, but the person making the gift continues to benefit from the property. In these circumstances, they may still be considered to own it for Inheritance Tax purposes.
To potentially exclude the property from their estate, they would generally need to give away all benefit in the property. For example, if they continue living there, they may need to pay the recipient a full market rent for the entire time they continue to live in the property. The market rent would also need to be kept under review.
Other Reservation of Benefits Rules can come into effect, so it is important this is looked at carefully.
Can I gift my home to avoid Care Fees?
Another common reason people consider gifting their home is to try to avoid it being taken into account when their finances are assessed for care fees.
However, giving your property away does not automatically mean it will be excluded from a future care fees assessment.
The Local Authorities have ‘Deliberate Deprivation of Assets’ rules, which mean they can take a gift into account if they believe it was made to avoid paying care fees.
For care fee assessments, a Local Authority can look back as far as it considers appropriate when considering whether there has been deliberate deprivation of assets. There is a common misconception that anything outside of seven years is excluded. This is a confusion with the Inheritance Tax seven-year gifting rule.
What are the risks of giving my home away?
Tax and care fees aren’t the only things you need to think about.
Once you gift your property, you no longer own it. This means that if you need to access money from the property in the future, it will no longer be available to you in the same way.
There are also risks associated with the person receiving the property. For example, if they get into financial difficulty or go through divorce proceedings, the property could potentially be affected by their debts or other legal proceedings.
As the recipient would become the legal owner of the property, they could also have the right to ask the person who made the gift to move out.
These are important considerations that shouldn’t be overlooked when deciding whether gifting your home is right for you.
Is gifting my home the right option?
There isn’t a one-size-fits-all answer. The most important things to consider are why you want to gift your property and your individual circumstances.
Gifting your home is a significant decision and, once the property has been given away, it may not be possible to simply reverse the decision if your circumstances change.
Taking legal advice before making a gift can help you understand the potential implications and make an informed decision based on your individual circumstances.
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