Property transfer

Paul-Newport

Help required please.

Im in my 60's and in good health living in my own mortgage free house.
I want to sign over the proprty to my only son, I'll live in it rent free for the rest of my life and he will be responsible for all the upkeep and repairs.

Are there any potential legal or tax issues that my son might face?

Thanks in advance for any advice

CLAPTON

if the intention is to avoid Inheritance tax then I'm afraid it wouldn't be effective.

It will be treated as a gift with reservation and your estate will be charged the full IH tax unless you genuinely give it away i.e. pay a full market rent etc.

also you need to consider the situation where your son is married and then dies... it would become the property of his wife and you may have no right to stay there.

Paul-Newport

Thanks Clapton,

The real intention isnt to avoid tax as Im hoping to live a good 20 yeas or more! The immediate motive is that I cant afford the ongoing repairs but dont want to move, so living rent free with my son owning and maintaining the property is ideal. Do you know if my son will my always be liable for inheritence tax on the house or is it time sensitive?

Thanks

CLAPTON

usually a gift is IHTax free after 7 years but if you live in it rent free then its a gift with reservations and there is no time limit.

Willman_Rodders

As a willwriter and former IFA I often come across requests of this nature. There are usually one of two reasons:

1. Reduce the size of the parent's estate for IHT purposes; or
2. Avoid the house being forcibly sold to fund long-term-care.

In the case of 1 the inheritance tax 'gifts with reservation' rules apply, and earlier posts cover this point succinctly.

In the case of 2 the 'Care in the Community Act' allows Social Services to question why the transfer was made; the only logical answer as to why a parent would give up their residence is to avoid long term care costs. It is illegal to dispose of assets to avoid these costs. Social Services would then consider enforcing the son to fund the parent's long term care - again negating the effect of the transfer.

One final point. The consequences of your son's death has already been discussed. What happens if he gets into financial difficulty and is declared bankrupt? The answer is you loose your house.

What a costly mistake it could be to transfer ownership.

I cannot see what real benefit there is to transferring ownership at this stage. Let your son come live with you, let him pay the bills. you could consider equity release (ependant upon your age, the risks etc etc) You make sure your will is up-to-date, and be aware of the risk of disinheritance if your find another partner; and if you do the solution then is to redraft your will with interest in possession trusts included as required (this is getting a little complex for a discussion board) and professionally drafted so that your son's inheritrance is protected.

My recommendation: Seek professional advice before proceeding.