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7 year rule on gifting property
Comments
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TrulyMadly wrote: »We originally put the house in my name to avoid paying care home fees should they arise.
Interesting combination of attitudes. And yes, I am being judgemental by comparing what you have attempted and what I thought was best for my parents ... and other tax payers.TrulyMadly wrote: »Just to clear up a few things.
I have never defrauded anyone.0 -
TrulyMadly wrote: ».
We originally put the house in my name to avoid paying care home fees should they arise.
Anyone thinking of doing this, please be very careful. There is NO 7 year rule for this. If social services feel that this has been done for exactly this reason then the value of the property can and will be taken into consideration, and the care home fees will be charged.:rotfl:Ahahah got my signature removed for claiming MSE thought it was too boring :rotfl:0 -
TrulyMadly wrote: »Can anyone give me advice please.
My parents put their house into my name over 7 years ago. My mother died in July 2009 and my father is now terminally ill.It wouldn't have worked to save care home fees anyway- would have fallen foul of the deliberate deprivation provisions.If the client had continued to occupy the property they could have gone to court to endeavour to get the transaction set aside: it depends upon the approach of the local authority in each individual case. If it was done to avoid the payment of nursing home fees then it would have been in clear breach of CRAG.
Personally I prefer transferring the property into a discretionary settlement, followed by a resolution permitting the settlor to occupy the same: they have never succeeded in setting one aside which I have been involved in.
Hi RobS77, this is an interesting discussion.
So a gift to a relative 7 years ago would fail the CRAG test yet a gift to a trust wouldn't - even though they would still be occupying the property in both cases? How come? What's the difference?0 -
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zygurat789 wrote: »But the OP said they have owned the house for more than 7 years
They haven't owned it free of encumbrence - the parents continued to live there rent free. For IHT it counts as the parents' asset.0 -
Hi RobS77, this is an interesting discussion.
So a gift to a relative 7 years ago would fail the CRAG test yet a gift to a trust wouldn't - even though they would still be occupying the property in both cases? How come? What's the difference?
Sorry, I have just had this question pointed out to me by another poster! Basically, the use of a DT gives the transfer more credibility in any dispute, as long as the trust is properly administered on an annual basis by the passing of a resolution: we used to be able to argue that the trust was set up for IHT mitigation in some instances, but that doesn't run anymore since the Budget Changes, but you can still argue it is done for asset protection for the next generation.
If it is done the week before someone goes into a care home, then it will be set aside, but if at least two years pass, then the elapse of time means that the Local Authority find it more difficult to set aside. I am not aware of any transaction being set aside after the 2 year period has run, and after 7 years I think they would find it alot more difficult to argue: although clients always have to be made aware that the law can change etc, and the LA may have a go regardless. I personally don't think it is worthwhile doing a straight transfer, but a gift into trust may well be worth considering if the clients primary concern is prevention of nursing home fees, but the earlier the better really: it might be worth someone in their 60s or 70s doing it, but by the time someone is 90 odd it is more debateable. The DT Wills though are worth doing at any age as I am not aware that certainly where I work the LA has ever even tried to have one set aside.0 -
Hi Rob,
So just to follow on from Luiccia's questions. We have a house that was given to the daughter 7 years ago and care is now on the horizon for the mother.
You originally said this:Where the client continues to occupy the property then they certainly have grounds to set the transaction aside- there is no argument for them doing it on the basis of IHT- as it would qualify as a GROB- so the only reason for the transaction would have been deliberate deprivation. The LA could either bankrupt the client or go to court to have the transaction set aside. I presume you know that such a transaction is in breach of CRAG?
Then you said this:
If it is done the week before someone goes into a care home, then it will be set aside, but if at least two years pass, then the elapse of time means that the Local Authority find it more difficult to set aside. I am not aware of any transaction being set aside after the 2 year period has run, and after 7 years I think they would find it alot more difficult to argue
Can you explain the contradiction? So on one hand you say that just because the mother continued to occupy the property it would be deemed deliberate deprivation, yet on the other hand you said after 7 years they would find it a lot more difficult to argue. The local authorities cannot just make assumptions why the house was gifted - the mother could have had other reasons, surely?
Can you also explain a bit more about the CRAG test please? I thought it had something to do with care being forseeable? Can you enlighten us?0 -
But the OP said they have owned the house for more than 7 years
When someone makes a gift, it has to be a gift for which they no longer receive any benefit from. Only then does the 7 year rule apply (and that only applies to IHT, not deprivation of assets for local authority care provision).
As the mother was still living in the property rent free, she had made a "gift with reservation" which means the asset never left the estate for IHT purposes. So, it is included in any IHT calculation. Also, as the owner of the property is no longer the mother and its not a primary residence, it becomes chargeable to CGT as well.
So the upshot is:
1 - The transaction was deprivation of assets and the local authority could choose to make a charge against it if they wanted. Whether they would is hard to say given the timescale but once they found it was rent free and used to be owned by her, then they may well consider it.
2 - It does not avoid inheritance tax
3 - it creates a potential capital gains tax liability
A complete mess and totally unnecessary and the objectives could have been achieved without creating unnecessary tax bills.So just to follow on from Luiccia's questions. We have a house that was given to the daughter 7 years ago and care is now on the horizon for the mother.
I think the above explains that for you.The local authorities cannot just make assumptions why the house was gifted - the mother could have had other reasons, surely?
Correct. However, there should be a record of the gift and a reason. If the reason is valid, then that is fine. Its no different for investment bonds. They are also exempt from the means test unless you put them in there for the explicit purpose of getting them out of the means test. If you have a valid reason then they are not included. Although its a bit easier to give a valid reason with an investment bond than it is gifting a house to a child.Can you also explain a bit more about the CRAG test please? I thought it had something to do with care being forseeable? Can you enlighten us?
Once you know the care is needed then virtually any attempt to remove assets will fall foul. However, that doesnt mean that transactions before then are automatically exempt. No matter how early you do the transaction, if the reason was to get it out the means test, then it can be included. In reality, the length of time does make it harder for the local authority to prove but they can still try.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Hi Rob,
So just to follow on from Luiccia's questions. We have a house that was given to the daughter 7 years ago and care is now on the horizon for the mother.
You originally said this:
Then you said this:
Can you explain the contradiction? So on one hand you say that just because the mother continued to occupy the property it would be deemed deliberate deprivation, yet on the other hand you said after 7 years they would find it a lot more difficult to argue. The local authorities cannot just make assumptions why the house was gifted - the mother could have had other reasons, surely?
Can you also explain a bit more about the CRAG test please? I thought it had something to do with care being forseeable? Can you enlighten us?
Where the trust is discretionary, CRAG para 10.020 states:
“Where payments are made wholly at the discretion of the trustees and there is no absolute entitlement either to capital or income, only take into account payments which are actually made.”
This means that, in principle, the capital interest in a discretionary trust is immune from assessment whilst it is held by trustees. The transfer into trust is, of course, a deprivation, but provided that the settlor remains a beneficiary of the trust and the trustees have complete discretion, it may be difficult for an assessor to quantify the extent of the deprivation. If that is the case, then intention becomes irrelevant.0 -
Hi WF- Thanks for the post, I always tend to advise clients that the passage of time tends to give the transaction more weight, but having just looked up the relevant bit of CRAG (thanks to a London firm!) the issue of timing doesn't necessarily seem to be an issue.
My point of view in the first post is that there can be other reasons (namely asset protection as the guy above I think made reference to) for a transfer to a discretionary trust, so certainly the partners at my place always advise that a transfer to a discretionary settlement is a better option, for the reasons that the guy has outlined above. Certainly LAs tend to be more reluctant to have a go at DTs rather than outright gifts in my neck of the woods. I agree it has no IHT advantages: re CGT if the settlor continues to occupy it I think you could still claim PPR exemption, but not normally getting involved in CGT I defer to other peoples greater knowledge in that regard. You can of course hold over the CGT even if PPR wasn't available until the property exited the trust.
There are of course no administration costs once the trust is set up as it is non-income producing. Alot of IFAs tend to regard trusts with quite alot of hostility and an excuse for solicitors to make money! Once the transaction is done, there shouldn't be any ongoing costs on a trust like this.
Re the guy above, do LAs in your part of the country have a go at DTs under DD legislation? Where we are based I have never known them so do.0
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