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Many contemplate passing their home to their children to ensure that this is protected from care fees should they have to go in to care in later life. Claudia Roberts, Partner & Chartered Tax Advisor explains.
Is this legitimate and is it a good idea? Yes, and no – it can be done but there are major issues to consider;
The risk of being homeless in old age
Once gifted the property belongs to your children – so they could kick you out! Chances are that they won’t, but if they were to get divorced, be made bankrupt, die or have to go in to care, you would be left at the mercy of third parties.
Once gifted the property belongs to your children. Therefore your children may have to pay Capital Gains Tax on a future sale. The gift would not be effective for inheritance tax purposes unless you paid market value rent to your children for living in your own home.
It probably won’t work
The local authority can challenge a gift if it leaves you short of assets to pay for your care. There is no time limit and any challenge would likely be successful.
What about yourself?
Once you have gifted your property you no longer have this to pay for your care. This may mean that you receive local authority funded care unless your children pay a top-up for better care.
So what are the alternatives?
1. Before selling your house your income is available to pay for care. You could use the property (i.e., by letting it or selling it and re-investing the monies) to bridge the shortfall between your income and the cost of care. If good financial advice is taken any capital draw-down could be minimised. Alternatively it may be possible to purchase a care annuity.
2. Your children could move in to look after you in your own home.
3. Couples can make Wills containing special trusts to protect at least half of their property from care fees. The advantage of using the Will is that you retain control during your lifetime and, at the same time, protect most of the asset. This is a rare case of having your cake and eating it!
In summary, for couples the best way to protect their property from care fees is by making special asset protection Wills. For further information contact us or see our Wills section for more information. You can contact Claudia directly on 01983 527878 or firstname.lastname@example.org