Should I give away my home?

Published by Jo White on 12 April 2019

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As an individual your home may be your most valuable asset. Despite this, when looking at inheritance tax (IHT) planning the home is often left alone due to the tax consequences of making such a gift.

Many individuals’ concerns don’t relate specifically to any tax due, but that they will have to sell their home to meet their care home costs later in life. Some businesses have identified this as a concern and are therefore promoting ‘home trust schemes’ which they claim can prevent this from happening.

From a tax perspective the gift of an asset to which you can still benefit is ineffective as a form of IHT planning. Even if you are not the legal owner of the property concerned, its value could form part of your estate under the Gift with Reservation of Benefit (GWROB) rules. Until such a time as you no longer benefit from the property its current value could be subject to IHT at 40% on your death.

To prevent the GWROB the person making the gift will have to pay market value for the use of the property. This income becomes taxable on the new owner; whether they are an individual or a trust. A market value rent for the use of the property could be fairly high, therefore you have to be able to afford the rent from your current income.

If the property is transferred into a trust then, depending on its value, there could a lifetime IHT charge and subsequent charges every 10 years, or when the trust comes to a close.

For capital gains tax (CGT) purposes the gift would likely be tax-free as long as this has always been your home. However, the subsequent sale by the new owner could be subject to CGT as even though you remain living there it may not be the home of the new owner.

The ownership of a property in a trust, or by someone other than yourself, can sometimes protect it from care home fee assessment. However, there are specific anti-avoidance rules which can be invoked meaning that even if your home is no longer owned by you, where the sole purpose of the transfer was to reduce your assets for this reason it will still be taken in to account.

Whilst giving away your home may seem attractive it is important you understand all of the costs and consequences of doing so before any steps are taken. Each individual’s position is different and therefore we would recommend you seek professional advice before entering into such an agreement.

For further information please speak with your usual Kreston Reeves adviser or contact us here or on +44 (0)330 124 1399.

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