If you gift your house to your children but continue to live in it, then the gift will normally be a ‘gift with reservation’, which means that the property will be treated for IHT purposes as having never left your estate. If, however, your children dispose of the property, any increase in value after the gift to them has been made will normally make them liable for Capital Gains Tax (CGT) on the increase. If you retain it, the increase will be free from CGT if the property is your principal private residence.
Similarly, if you give your house to your children, your local authority may still take account of the value of the house when assessing your contribution to your long-term care costs.
Other points to consider before relinquishing ownership of your property are:
- If you wish to raise funds for whatever reason, you will not be able to obtain a loan based on the equity you had in the property;
- If a child divorces or is made bankrupt, you may lose the property, which may also happen if the property is used as security for a loan on which the borrower defaults;
- If your children need cash, they may exert pressure on you to leave the property so that it can be sold; and
- If your child predeceases you, their beneficiaries will be the new owners and may prove to be more difficult to deal with.
When an attempt has been made to manipulate the income or capital of the care home resident to prevent it falling into assessment, for example by transferring an assessable asset, the local authority is permitted to make an assessment to recover the charge from the person to whom the asset has been transferred within the six months prior to admission to the care home. In principle, if the purpose of the transfer is to avoid care home costs, the council can challenge a transfer made at any time, so even if the transfer happened more than six months before you moved into care, they can assess you as if you still own the assets.
