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Dangers of transferring your property to your children

by Raminder Uberoi — Posted on 19 June, 2017

How giving your child a share in your property can mean high care home costs

It is important to be aware that if you wish to reduce care home costs by giving away a share of your property to your child, you could face eviction.  Please take a few moments to read this short blog on points to be aware of when transferring property.

What are the rules?

If your assets are worth less than £23,250 you will get help from the local authority but you may have to make some contributions to your care fees as the means test is done on a sliding scale.

In some situations, your home will not be taken into account when assessing the value of your estate, for example if you require care for a temporary period of less than 12 weeks however other assets such as investments and savings will be factored into the calculation. In addition, your home will not be counted if it is occupied by:

  • Your spouse or civil partner
  • Your estranged or divorced partner if they are a lone parent to a child under 18
  • A relative aged 60 or over
  • A child of yours aged under 18
  • A close relative who is disabled

If the property is included in the assessment, it will be at current market value less any mortgage or other loan secured against it.

Private funders are estimated to pay around 43% more in fees than those funded by the local authority. A local authority may step in to cover costs at its own rate to prevent a vulnerable adult from being made homeless, but there is no guarantee a care home will accept this arrangement indefinitely. Care homes are commercial businesses and cost £32,000 a year on average in England. They are therefore reluctant to accept the local authority rate for those who should be private funders.

Deferred payment agreement and ‘deprivation of assets’ rules

Deferred payment agreements may allow care home residents who own their homes to defer the costs of cares. Residents may also be eligible if a family member remains in the home.

It is important to be wary of ‘deprivation of assets’ rules. These apply to situations where someone moves into a care home and transfers part or all of their property, or another asset, to someone else with the intention of obtaining better care funding. It may also apply to situations where:

  • An asset is sold for less than its true value
  • A lump-sum payment is made to someone else, for example as a gift
  • There is sudden, substantial expenditure that is out of character with previous spending
  • The title deeds of a property have been transferred to someone else
  • Assets have been put into a trust
  • Assets have been reduced by living extravagantly – e.g. gambling

If a local authority can prove that the main reason for you completing the transfer was to avoid paying care fees, it can include the full value of the property when it carries out its assessment of your finances. Authorities have adopted a more vigilante approach in recent years in applying these rules due to cutbacks in government funding; since 2013, most cases referred to the Local Government Ombudsman have been decided in favour of the council or dismissed. For detailed guidelines please see Age UK’s, Deprivation of assets in social care factsheet.

Giving assets away – the advantages

An individual can pass on assets worth up to £325,000 without their beneficiaries having to pay inheritance tax. Anything above this is taxed at 40% although this can be lowered if you make substantial charitable donations.

There is an extra allowance called the residence nil-rate band which gives you an extra £100,000 this year towards your inheritance tax allowance if you are passing on a family home. Only those with ‘direct descendants’ such as a child or grandchild are eligible and this allowance will rise to £175,000 in 2020-21.

You can transfer an asset to anyone and it will be deemed outside your estate for IHT purposes for seven years. However, you cannot benefit from the asset after the transfer.

Giving assets away – the disadvantages

It is possible that you’ll leave yourself exposed with few resources to pay for care home costs. In addition, the local authority will have the say in which home you end up in. Family fall outs can cost time and money. As soon as you hand over part-ownership of your property, your family have control. Complications may arise where the family member remains in the property after you have moved into a care home and they do no co-operate with the local authority.

The status of trusts

Trusts are legal devices designed to hold assets on behalf of named beneficiaries. They will be regarded as existing outside your estate if you live for seven years after making the gift. However, there may be inheritance tax liabilities if the assets are worth more than £325,000. They can be a flexible and efficient mechanism for passing assets from one generation to another and guarding against a beneficiary’s future divorce or bankruptcy.

How we can help

Starck Uberoi’s private client team has great experience. Whatever the level of complexity of our clients’ assets and wishes, they all feel listened to and we provide fast and responsive advice. We quickly develop trust and ensure that we are available when you need us. For more information on our estate planning and trust work please call us to book an appointment on 020 8840 6640. We are based in Ealing, our office is located 10 minutes from Ealing Broadway Station.

About Raminder Uberoi

Raminder is head of the property department and his practice includes acquisitions, sales, financing, planning, development, landlord and tenant matters and corporate-related property transactions. He specialises in all aspects of commercial and residential property continually developing successful and practical client-focussed strategies. He draws on his wide experience to achieve tailor-made solutions for his clients’ commercial and financial needs.