Equity release and gifting to money to children

nigel1962

Hi - My parents own their own house which they have paid off the mortgage many years ago. Roughly 5 yrs ago they took out 100K in Equity Release against the house to gift to family members. My question is......if my parents now wish to put the house into their childrens name (Me and my bother) in order to activate the 7yr rule, would they need to pay off the equity first? or can the house be gifted with the Equity in place?..Many thanks in advance

guiriman

Equity release would mean they have a loan, presumably secured on the house. If that's the case then they'd need to settle the loan before the house could be transferred

qwert_yuiop

That’s correct, but will they (after the loan has been paid off) continue to live in the house after transfer? They will have to pay a market rent, otherwise the inland revenue will see this as a retention of benefit.

guiriman

The 7 year rule relates to inheritance tax, there is no similar rule when it comes to deprivation of assets for social care. In my Mum's case she will not pass the inheritance tax threshold so there's no reason to do it

Keep_pedalling

No, they can’t transfer ownership with ER in place which is probable a good thing.

Gifting your own home is one of the dumbest moves they could make. Their home provided their long term security so they should not risk that by giving it away. It is not unknown for people to find themselves homeless through a falling out or the death or bankruptcy off their children. 

Their joint estate is way below IHT levels and this would be seen as deliberate deprivation of assets  if one dies and the other needs residential care. Capital gains tax is likely to be an issue when the house is eventually sold.

Do the have wills and LPAs in place? If not that should be the current priority

p00hsticks

nigel1962 said:

if my parents now wish to put the house into their childrens name (Me and my bother) in order to activate the 7yr rule, would they need to pay off the equity first?

Unless the children are also living in the house, then if the parents remain living there and don't pay them a market rent, the '7yr rule' is irrelevant. Read up on 'gifts with reservation of benefit'.

As others have said, this is usually a really bad move to make on all sorts of levels.

I dontl know exactly how things work in Northern Ireland, but in England ....

Financially if the children do not have it as their main residence it creates a CGT liability for them when the property is eventually sold, as well as potentially costing them more in loss of first time buyer SDLT relief / second property higher SDLT when they buy property of their own, while achieving nothing in potential IHT savings due to it being a gift with reservation. And if in IHT territory in the first place, (which most aren't)  you're parents would lose the residential nil rate allowance when leaving property to descendants. 

That's before you take in the possible fall out if one of the chidren goes bankrupt or divorced and the house has to be sold from underneath the parents, leaving them homeless.

qwert_yuiop

Their joint estate is way below IHT levels and this would be seen as deliberate deprivation of assets  if one dies and the other needs residential care. 

They haven’t mentioned the value of the estate (or potential estate).