- A couple may wish to transfer a property into joint names.
- As a result of a financial settlement following a divorce or separation.
- Under the terms of a Will when someone has died.
- Under the terms of a Trust (sometimes to save on Inheritance Tax).
Consequences of Transferring Property
There are good reasons to transfer property but occasionally, there may be unintended consequences, particularly when the transfer has been made as a gift. E.g:
- Taxes and Fees – These could include inheritance tax, capital gains tax, or stamp duty land tax, depending on the circumstances.
- Mortgages – If the property has an outstanding mortgage, you will need to consider how this will be managed. Sometimes the mortgage may need to be paid off before the property can be gifted, or the recipient may need to secure a new mortgage in their name.
- The ‘7-year Rule’ – Many people wrongly believe that gifts made more than 7 years ago are safe, but this is not the case. The ‘7-year rule’ only applies to gifts for Inheritance Tax purposes. It is a common misconception that people think if they give property to their children and survive for 7 years, that will save Inheritance Tax; when in fact, if you continue to live in the property, the value of your home will still be included as part of your estate no matter how long you survive, this is unless you start paying market rent for your occupation of the property.
- Care Fees – If you give property away to avoid paying care home fees in the future, the local authority will look very closely at the circumstances. They have the power to overturn any gifts made that are seen to be made intentionally to avoid paying care fees. This is known as ‘Deprivation of Assets’ **
Deprivation of Assets
**The local authority will consider 2 things:
- If an individual knew at the time of the disposal that they may need care and support in the future
- Avoiding care fees was a significant reason behind giving away your assets / spending money etc:
The local authority can look back over several years to when an individual first had care and support needs to determine the different methods used to reduce one’s money and property. They take into consideration expenditures over that period e.g. any spending habits that were out of the norm, taking out large funeral plans or high care packages, using savings to by possessions which can be excluded from the means test.
The local authority should not automatically assume that deliberate deprivation has occurred. They must be able to show that disposal of assets was significantly motivated by avoiding care costs. If it is concluded that an individual has deliberately reduced their assets, they may still calculate the fees as if you still owned the assets.
Planning Your Estate Effectively
By being well-informed and seeking expert legal advice, we can help you decide whether it is the right thing to do you and minimise any potential pitfalls. At Bridge McFarland, our private client team can assist you in planning your estate to ensure that you and your family are in the best possible position.