Gifting House to Children?

Duncombe

Yorkie1 wrote: »

Getting a bit beyond my knowledge limits now, I'm afraid.



For the sake of playing devil's advocate, why should the hard-pressed state subsidise something which one has every means to pay? An argument which goes round in circles regularly on this forum!

What are you implying the state is subsidising in this particular situation? Potential state care for the elderly?

Yorkie1

Yes, sorry, didn't make that clear.

tawse57

Lots of potential dangers.

A solicitor friend of mine no longer deals with this because he has seen so many parents turfed out onto the streets by their 'loving' children. Some of the horror stories he has told me have made me lose a lot of faith in human nature.

Firstly, the child you think loves you might not love you as much as you think - this is usually what happens and too many loving parents in their 60s, 70s and 80s have found themselves go from house rich to literally poverty and literally on the streets.

Then there is the issue of debt - suddenly one of your children finds themselves in lots of debt from, well, anything. House prices falling and negative equity, or just being greedy so and sos who got loads of non-mortgage debt or a business venture that goes wrong. No problem, sell the house that Mum and Dad gifted us - that will sort our debt problems.

Or what about one of your children divorcing and their partner claiming your house in the divorce - or half of it...

My solicitor friend told me that Trusts are the best option - but he told me this about 5 or 6 yeras ago so maybe things have changed. The house goes into a Trust and you and your children are Trustees, sometimes with a solicitor as third party, and you get to stay in the house as part of the trust until the day you die.

I am no legal nor financial expert and I imagine the rules on this change regularly. Hence you need to get yourself a good solicitor, one who is REALLY good and whom you can trust. Don't just think about the tax benefits though - think about the real dangers that may also arise in the future.

This is neither financial nor legal advice.

Duncombe

All input is appreciated, advice or opinions.

I only enquired to try and improve my personal knowledge of the factors at play here as it is a situation I may one day be faced with.

And Yorkie - I wholeheartedly agree. Why should the state fund someone who has the means of paying for their own care? I hold the somewhat medieval view that if people can not pay for their own care, then their only option is to go without....but thats an entirely different thread :O.
Fortunatly, I am quite certain state funded care is not something the parents would ever have to reply on.

martindow

Duncombe wrote: »

Fortunatly, I am quite certain state funded care is not something the parents would ever have to reply on.

Someone needing residential care will eat up cash at an extraordinary rate. You would be likely to be paying several thousand pounds a month. Even large levels of saving get used rapidly if a few years of care are needed for one or both parents.

CLAPTON

so main home is 600k
holiday home is 250k
cash etc is 150k
making 1m in total

IHT allowance per person is 325,000 so 650,000 in total

so liability is 350k at 40% so tax might be £140k

gifts made 7 years before death are outside IHT so why not start with the holiday home and give that to the child(ren)
that would reduce the estate to 750k making IHT only 100k x 40% so only 40k which is not so much
simple easy etc
is that a problem?

purple_haze

I asked my husband who is a lawyer and he says


The parents could give the main residence to the children and at the same time the children could grant them the right to live there rent free by way of a declaration of trust. This is a simple process and because the parents would retain the right to live there principal private residence relief from Capital Gains Tax would still be available on any gain in value between the date of the gift and the date of the parents' ceasing occupation.


The right to occupy would be legally enforceable so there would be no danger of the parents' losing their home in the event of the children's divorce, bankruptcy, falling out with parents,etc..


However, it would be a gift with a reservation of benefit so the value of the house would still form part of the parents' estates for Inheritance Tax purposes so there would appear to be no financial benefits in gifting the house.


However, if a child were to move into the house and the parents were to gift, say, a third of the house to him, then it would not be a gift with a reservation of benefit but a potentially exempt transfer. If the parents survived for 7 years, the value of this third of the house would be removed from the parents' estates for Inheritance Tax purposes. The parents in this scenario could be in danger of the house being sold in the event of the co-owning child's bankruptcy.


Hope this helps.

poppysarah

Take proper legal advice.

And imagine the worst. Yes families do fall out horribly.

getmore4less

Get a few books on estate planning from the library.

Will still need to get legal and tax advice but at least you will have some idea of what it is all about.


Draw up a tree of people and assets and work through the senarios of people dieing in different orders and the various options for moving assets around.

Gifting assets can solve the problem for the older generation but just creates a problem for the younger one.

Eg. they gift you the house £600k, you live there, you die, then there is a potential IHT tax bill of £110k, how does that get paid.


Also have to plan for the risk of multiple deaths, most people do this for couples and children, we started traveling on holiday with our parents that incresed the risk of us all dieing together and it could have easily put all the assests in one person(coma and dies last) and a big bill is due or deeds of variation would have been needed to sort out the mess that would have been left for my sister.


We priced up care and basic is around £25kpypp easy to spend much more, cheaper to give up and live on a cruise ship if medical care needs are low.


Some of the trust stuff has changed(loopholes closed) and some trusts now have ongoing tax liabilities and this creates work for the trustees.

It is very easy these days to hit the IHT nill rate band as relative pass the money down, ok the risk might be low of death but plenty of people die prematurly.

Radiantsoul

I would suggest that with £1m worth of assets it is worth taking proper advise from a solicitor. The potential savings are likely to make this a good investment.