Transferring second home to son

EdGasket

I am thinking of transferring a second home to my son to minimise future inheritance tax and to prevent my being forced to sell it to pay for my care home fees in the future should the need arise. The flat was bought for around £50K and is now worth £120K however I merely wish to transfer ownership for nothing or a negligible amount.
My questions are:
1) Is this the best thing to do for my two goals of minimising IHT and of protecting the flat from forcibly being sold later on for care fees?
2) Given that my son is paying nothing for the flat, is there some way of preserving the fact that £50K was paid by me originally so that if ever there is any capital gains tax to pay, this £50K can be deducted from any gain? (it will be my son's main residence and therefore I assume he would not pay any CGT anyway if/when he sold it)
3) Is there any better way to do this ?

dunstonh

I am thinking of transferring a second home to my son to minimise future inheritance tax and to prevent my being forced to sell it to pay for my care home fees in the future should the need arise.

You should look up deprivation of assets for care home fees and you should consider that inheritance tax will not be avoided if you continue to benefit from that second home and capital gains tax could come into play as well.

grey_gym_sock

for CGT, you would be treated as having disposed of the property for its market value, not for nil, so you might have CGT to pay. and your son would have the same market value as his base cost for CGT.

Linton

What you are proposing seems as good a way as any of avoiding inheritance tax providing you can reasonably expect to live another 7 years. But note the previous comment about the CGT you will have to pay if it hasnt been a primary residence.

As to whether it will work for care home fees I dont know as the rules are likely to change and "deprivation of assets" but I am impressed by your self sacrifice for your son. You are prepared to take the chance of spending your final vulnerable years in the cheapest care home your local authority can find so that he gets his inheritance. One hopes that he will remember to raise a glass to you while you chew on the rather odd meatballs and tinned spaghetti served up for your dinner.

dunstonh

As to whether it will work for care home fees I dont know as the rules are likely to change and "deprivation of assets" but I am impressed by your self sacrifice for your son.

The rule is that anything that has been done specifically to avoid care home means test would allow them to claw the asset back into the means test irrespective of how long ago it was. If there is a genuine reason for doing it not linked to the means test and its just a happy coincidence and care home is not seen as being expected then that is fine.

However, anyone with assets planning to be subject to local authority care is in for one hell of a shock. I fear they dont realise the severe drop in living standards that they are lining themselves up for.

EdGasket

Thanks for the responses. Must admit that I was not aware I would have to pay CGT on an outright gift that I hadn't made a personal gain on; that sucks.
Regarding care home fees, I am in good health and may never need a care home, who knows, but it is a precaution against the state taking everything away that I have worked for. I don't see that they could force my son to sell his only home and become homeless in the future to pay my care bills could they?

innovate

EdGasket wrote: »

Thanks for the responses. Must admit that I was not aware I would have to pay CGT on an outright gift that I hadn't made a personal gain on; that sucks.
Regarding care home fees, I am in good health and may never need a care home, who knows, but it is a precaution against the state taking everything away that I have worked for. I don't see that they could force my son to sell his only home and become homeless in the future to pay my care bills could they?

So you would expect other people to pay for your care, so that your son can benefit from your second home? I am glad to say it doesn't work like that.

dunstonh

Must admit that I was not aware I would have to pay CGT on an outright gift that I hadn't made a personal gain on; that sucks.

Its classed as a disposal and you pay on against the gain at market rates. You say there is no gain. If so then you would not pay CGT. However, if you retain a benefit to that property (say if its a holiday home) then you dont avoid IHT either.

Regarding care home fees, I am in good health and may never need a care home, who knows, but it is a precaution against the state taking everything away that I have worked for.

Most people do not. The stats are low for actually requiring it. However, you say you have worked hard. Why would you work hard to see yourself suffer local authority care?

I don't see that they could force my son to sell his only home and become homeless in the future to pay my care bills could they?

They would likely put a charge on the property which would be repaid to them upon sale of that property. That is unless your son inherits other things from you or has an investment property/other assets he could sell. In effect, they would check his Assets and decide from there.

EdGasket

innovate wrote: »

So you would expect other people to pay for your care, so that your son can benefit from your second home? I am glad to say it doesn't work like that.

No, hard working people have what they've earned taken away from them to pay for lazy scoundrels who've spent their whole life on benefits or pi**ed up everything they've earned. I am sorry to say it seems to work like that!
I'm not saying I wouldn't expect to pay something towards my care but to happily hand over both my properties is beyond the pale.

EdGasket

Ref donstonh "Its classed as a disposal and you pay on against the gain at market rates. You say there is no gain. If so then you would not pay CGT. However, if you retain a benefit to that property (say if its a holiday home) then you dont avoid IHT either."

When I say there is no gain I mean I am giving it away so I will not be making any profit; in fact it will in effect be a £50K loss to me personally however it would seem I will get taxed for CGT on a fictional £70K profit.

Linton

EdGasket wrote: »

No, hard working people have what they've earned taken away from them to pay for lazy scoundrels who've spent their whole life on benefits or pi**ed up everything they've earned. I am sorry to say it seems to work like that!
I'm not saying I wouldn't expect to pay something towards my care but to happily hand over both my properties is beyond the pale.

You wouldnt be "handing over" your properties. You would be using your assets to pay for the best care that you could afford. If you are paying, you are in control. Isnt that what you would want? Or do you really want to risk putting your final years in the hands of the lowest bidder?