HB - The Legal Corner Magazine #Issue 7

die without a will, under the relevant intestacy rules, and could ultimately pass to someone who the original owner did not wish to benefit. Again, by relinquishing control, the original owner could thereby be compromising their own security. Rather incredibly, there have been court cases whereby a transferor has transferred their home to a family member who thereafter deny the former owner access to the property! Relationships can, unfortunately, break down. Adverse tax consequences There can also be adverse tax ramifications to transferring property in one’s lifetime. It can lead to the loss of the residence nil-rate band (RNRB). This is an additional allowance for IHT purposes introduced in 2017 where property passes to children or other ‘lineal descendants’ on death. The allowance is £175,000 and a deceased spouse’s unused RNRB allowance can also be claimed meaning an additional saving of £140,000 in IHT could be jeopardised if property is transferred in one’s lifetime (40% of £350,000). Unless properly structured, gifting one’s home also runs the risk of not even activating the seven-year clock for IHT if it is treated as a ‘gift with a reservation of benefit’ (but which

Protection for care fees A homeowner may wish to consider transferring their home in order that it not be included as part of any financial as - sessment by the Local Authority for contribution to care fees. With the average annual cost of care estimated to be between £27,000 and £55,000, should nursing care be required (UK Care Guide), this is a very real concern for many people. However, transferring the family home is not without its risks. These are summarised below: Financial difficulties of recipient Once someone has disposed of their home, it forms part of the recipient’s Estate and the transferor is no longer in control as to the property and its destination thereafter. This means that should the recipient experience financial difficulties, the transferred house is thereafter potentially available to their creditors which could compromise the transferor’s security. Effectively, gifting the family home can put one’s residence at risk. Divorce/dissolution of civil partnership of recipient As stated above, assets owned by the recipient thereafter form part of their Estate. This means in the event of their divorce or dissolution of a civil partnership, the home could then form part of a matrimonial settlement and become available to the recipient’s former spouse/ civil partner. The transferor’s security could again be put at risk. Recipient’s position and circumstances It may simply be inappropriate or imprudent to transfer property due to the recipient’s own position and circumstances. For example, they could be on social security benefits and their acquisition of the asset could mean their eligibility to benefits is reduced or lost entirely. Further, it is possible that receiving such a valuable asset could discourage a recipient from working/ education and their general development. If the recipient dies before the transferor, the property would then pass in accordance with the terms of their will, or, should they

would actually then benefit from RNRB).

In addition, by transferring property in one’s lifetime, the principal residence relief for Capital Gains Tax (CGT) could also thereby no longer be available triggering a CGT charge if it is sold thereafter. In addition, the recipient is also potentially losing the benefit of the ‘uplift’ on death for CGT in terms of their base cost for CGT. Clawback Local authorities have statutory powers to challenge any property transfer arrangements they consider were entered into in order to deprive them of assets for assessment for care fees. This would mean the local authority could still include the

value of the transferred asset when assessing contribution to care costs.


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