Will Gifting Your Home Avoid Inheritance Tax?
It’s interesting that we tend to receive enquiries about the same question in waves and then not hear anything about them for a while.
Perhaps the enquiries are prompted by a news story or trending television programme?
We have recently received many calls from people who are considering making gifts of money or property during their lifetime.
Many believe this will allow them to give assets to their family and protect them from being used to pay for care fees or Inheritance Tax.
In particular, people often want to give away the home they live in.
Lifetime gifts can be a valuable part of tax planning and can achieve a number of personal objectives. However, the consequences are often misunderstood, and they can be devastating.
In this blog, we have set out some of the main points to consider when making a gift of your home during your lifetime.
Most people in this situation intend to continue living in the home, so we have focused on that. However, many of the points are relevant to gifts of second homes, money and other assets.
Professional Tax Advice
Firstly, it is important to take professional tax advice.
Giving away assets will not necessarily mean you don’t have to pay Inheritance Tax on them, particularly if you retain a benefit, such as continuing to live in a house you have given away.
Depending on the assets you give away, there could also be Capital Gains Tax to pay.
Care Fees
With regard to care fees, there is a false expectation that the gifted asset will be ignored for the local authority means test.
This is not the case.
If the aim of making the gift was to protect the asset from care fees, there are anti-avoidance measures in the law that enable the local authority to assess your finances as if you still own the asset you have given away. Some gifts can even be set aside by the Court.
The local authority has no time limit for reviewing the gift’s history and determining when and why it was made.
Giving Away Ownership (And Control)
Perhaps the most important advice to remember is that you will have no control over the property once you have given it away.
You may intend to continue living in the property, but you will have no right to do so, unless the new owner allows you to.
Most people gift their property to relatives who they trust implicitly.
However, circumstances can change over time, and people can fall out, become distant from each other, or be influenced by a third party.
There are also certain events that are beyond the control of both you and the new owner.
For example, the new owner’s bankruptcy, divorce, illness, or untimely death could mean the property passes to someone unexpectedly.
Depending on your reason for wanting to make a gift, alternatives may be available, such as a Will, Lasting Power of Attorney, or Trust, so it is always a good idea to contact us for legal advice tailored to your circumstances.