Deed Of Trust

artha

Back in 1995ish my parents transferred the ownership of their home to myself and siblings after reading an article from Age Concern advising that this was possible within the law providing they did not require residential care within 7 years of the change. The arrangement allowed them to live there rent free until both were deceased. I think this "loophole" has now been closed. We eventually aquired the house in 2006 after the death of our mother whilst still living in the house, so the legality of this transfer was never tested. The downside of transfer was that in the event we would have inherited the house anyway but having owned it since 1995 we were liable to Capital Gains Tax on the considerable increase in value of the house over that period

localhero

artha wrote:

Back in 1995ish my parents transferred the ownership of their home to myself and siblings after reading an article from Age Concern advising that this was possible within the law providing they did not require residential care within 7 years of the change. The arrangement allowed them to live there rent free until both were deceased. I think this "loophole" has now been closed. We eventually aquired the house in 2006 after the death of our mother whilst still living in the house, so the legality of this transfer was never tested. The downside of transfer was that in the event we would have inherited the house anyway but having owned it since 1995 we were liable to Capital Gains Tax on the considerable increase in value of the house over that period

I'm afraid that people are still engaging in these types of transaction without taking appropriate advice.

The 7 year rule applies to inheritance tax, provided that the person making the gift doesn't then continue to benefit (ie continue living in a house). Otherwise the value of the gift is added back into the estate and is subject to inheritance tax however long ago the gift was made.

There are a lot of myths around regarding safeguarding a house from care fees most of which are nonsense - and the most effective and legitimate method is for the couple to make up to date Wills.

Signing the house over whilst still alive is usually the worst thing to be doing.

EdInvestor

artha wrote: »

Back in 1995ish my parents transferred the ownership of their home to myself and siblings after reading an article from Age Concern advising that this was possible within the law providing they did not require residential care within 7 years of the change.

Ouch.It's amazing how many people got totally mixed up between the rules about IHT and the rules about long term care.It's still going on.

Amazing also how many solicitors don't seem to have mentioned the minor problem of CGT, and the major problem of "gift with reservation of benefit" and " voluntary deprivation of assets.":rolleyes:

Errata

If someone who was
say 67 years old
and still working say 3 days a week
and was as fit as a butchers dog
and gave their house to their offspring
and had say seven years later a serious stroke and needed residential care
it would be hard for a local authority to prove intentional deprivation of assets in order to avoid care home fees

weanie

localhero
We are considering selling my mother's home on the open [though currently limited marker]- she is meanwhile living with me.
The house belongs to her [50%] and 25% each to myself and my brother. This arrangement has been registered since my father's death. If I were to buy out my mother's share, would I be justified in paying a lower than 50% market value on the basis that the real vlue is reduced by the joint ownership? The 'unsaleability' of the home was mentioned before by a friend but I dismissed this as a bit suspect.

sloughflint

EdInvestor wrote: »

Amazing also how many solicitors don't seem to have mentioned the minor problem of CGT, and the major problem of "gift with reservation of benefit" and " voluntary deprivation of assets.":rolleyes:

I also wonder what would happen if the new owners divorced or went bankrupt.

Flyfisher_2

CRAG Government guide-

http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_4107292

localhero

Hi Weanie,

If your mother were to die, then for IHT purposes, jointly owned assets whose value cannot be readily split down (as in the case of land), a discount is permitted, on the value of the share owned by the deceased.

Generally, this discount is ten to fifteen per cent of the value of the asset at the date of the deceased's death.

If you were to buy your mother's share, then unless you are seen to be paying the market value, the difference would be viewed as a gift by her to you. I am assuming you are not buying your brother's share - in which case I think it could be argued that a discount would be allowable in the same way.

I would suggest that to avoid any awkward questions later, it would be wise to obtain a professional valuation of the share that you propose to buy before proceeding with the purchase.

Just as an afterthought, I don't know how you've come to own a share of the property, but if you and your brother inherited your dad's share, then there may be good reasons for your mother not to sell the house. For, if your mother later on required long term care, the capital she receives from any sale would be asssessable for care fees, whereas the house might be safeguarded.

You will therefore need to take that into account and obtain decent professional advice before going any further, so that you may prevent any unintended consequences that might arise.

weanie

thanks localhero
You afterthought is really where I was coming from. We did inherit Dad's 50% and Mum is possibly not even a year away from going into residential care. what I can't get my head around is the idea that we could prevent a charge being placed on the house by S Services when the time comes. I wonder if anyone else has been successful in doing so on the basis that other parties with an ownership share do not wish to sell. My advice from certain agencies has been that it doesn't make any difference and the 50% share belongingtomum would be swallowed up in back fees for the care.

Errata

Weanie, the situation you describe isn't straightforward. Should your mother retain ownership I can think of no good reason why the council wouldn't place a charge on the property. I don't know, but there may be some 'government rule' which prevents councils from being flexible about this. Council's are required by law to maximise their income and of course some of that income is used to fund care for older people both in their own homes and in residential care.
Common sense would dictate that if your mum's house was worth a million then the council would be foolish not to put a charge on it and be prepared to wait for the property to be sold.
You've already obtained advice from several agencies, could I suggest you seek guidance on this from the local authority?

I do realise that property being sold to pay for care is an emotional subject, but if councils don't do so then the care funding doesn't come from the government. It comes from council tax payers, many of whom are retired themselves and in need of some care which isn't available because of a shortage of services - whih means money - in their area.