If I gave you one of my pens and then took it back from you and continued to use it, would that still be a gift? What if the gift were a piece of art worth £250,000? I say to my friend “I give you my painting in my living room” but I continue to keep it on my wall. Would that be a gift?
The truth is that the pen and the painting would be included in my estate for inheritance tax purposes. This is because I have reserved the benefit of the items that I have given away. It is always important to take legal advice, therefore, when seeking to make a substantial gift. This is particularly true when one is considering making a gift of one’s home or other substantial property.
We receive numerous enquiries from people wishing to give away their home (or part of it) to their children, while at the same time seeking to retain control and occupation of it. Their reasons are varied, but a recurring theme is seeking to avoid having the family home eaten up by elderly care costs should this need ever arise.
While any form of financial planning is eminently sensible, it is important to realise that giving away ownership of your home means that you will lose control of your property. Although the recipient of the gift may be trusted, circumstances may perhaps betray them. Consider the following examples:
- Your child (and / or their spouse) may become subject to claims from third parties such as would arise if they went bankrupt.
- Your child may unexpectedly pre-decease you and your property would then likely pass to another party, who may have financial issues or simply be untrustworthy.
The bottom line is this: it is always possible that the person receiving the property may give it away or sell it, making you homeless. Additionally, gifts of assets which are given away with the intention of avoiding imminent care costs can be set aside by the local authority concerned in some circumstances.
That said, arrangements can nevertheless be made which are for the main purposes of inheritance tax mitigation and also for family succession planning. A legal concept frequently used for achieving an efficient transfer of assets is the Trust. A Trust is a relationship created at the direction of an individual, in which one or more persons hold the individual’s property subject to certain duties, to use and protect it for the benefit of others.
Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.