Should I transfer my home to my children?

Why do people choose to gift their property?

As the population continues to live longer with advances in medical treatment, and care costs continue to rise, people are becoming concerned about the prospect of potentially having to sell their family home to fund their care in the future. As a result, many people will consider transferring their family home to their children as they become older. We’ve set out some of the factors to take into account when considering this option, and some of the potential pitfalls that can ensue as a result.   

Care home fees

The Means Test

Should you require care in the future; the local council will conduct a means test to determine whether you are able to pay for your care fees yourself. At the time of writing, if your capital (i.e. savings and property) exceed £23,250 then you will likely have to contribute towards your own care fees. When conducting the means test, the local council must take into account the respective shares of each joint owner, where the property is owned jointly. 

When property will not be taken into account

The property will not be taken into account where only temporary or short term care is required in a care home. Where you require indefinite care, your property will not be taken into account where it is occupied by:  

• Your partner or former partner, unless they are estranged from you 
• Your estranged or divorced partner if they are also a lone parent  
• A relative aged 60 or above  
• A disabled relative  
• A child of yours aged below 18 

Deliberate Deprivation of Assets

If you were to deliberately reduce the size of your capital with the intention of avoiding care home fees, for example by gifting your property, the local authority may still be able to take account of the value of the property as part of the means test. The local authority will consider the following two questions:  

• Whether you knew or could have known that you may need care when you made the gift 
• Whether a significant reason for the gift was to avoid paying for your care 

In assessing these two questions, the local authority will take account of the timing of the gift together with other factors and personal circumstances. 

Other potential problems

• Inheritance Tax – if you gift your property but still continue to receive some benefit (e.g. living their rent free or continuing to receive income from the property if it is a second property), this may be deemed as gift with a reservation of benefit. This must then be taken into account when assessing your inheritance tax position.  

• Capital Gains Tax (CGT) – a gift of property which is not your main residence will usually result in CGT being payable on the disposal. This would be relevant to a gift of a second property used as a holiday home or a buy-to-let property. Where the gift is of the main family residence, then this would usually not attract CGT. 

• Bankruptcy – your child could become bankrupt in the future. As the property would be owned by them following the gift, the property could be sold as part of the bankruptcy proceedings leaving you homeless.  

• Divorce – your child may divorce their spouse in the future and may have to sell the property as part of the matrimonial proceedings, again, leaving you homeless.  

• Breakdown in Relationship – your relationship with your children may breakdown in the future. As they would own the property, they could ask you to leave, potentially leaving you without a home.     

Other options

Instead of gifting your property during your lifetime, it may be possible to create life interest trusts within your Wills where you own the property jointly with your spouse or partner. On the death of the first spouse/partner, their share of the property would be held on trust for named beneficiaries, such as your children. The surviving spouse/partner would then have a right to live at the property for the remainder of their life. If the surviving spouse/partner required care in the future, then it is likely that only their share of the property would be taken into account as part of the assessment, as the other share would be held on trust for your children.