Whilst there are ways in which you can reduce inheritance tax and care home fees through gifting, more often than not, giving away your main home for these reasons can be impractical – and may not achieve the desired outcome anyway.
The benefits and risks of giving an asset away
Below are some of the possible benefits and risks that you should consider when planning to gift an asset. Please note, however, that these points are by no means exhaustive and you must take advice from a professional.
Some of the possible benefits include:
- Reducing the inheritance tax and administration costs payable on your death.
- Avoiding the need to sell assets to pay for care fees.
- No longer having responsibility of the asset in question or any burdens that come with it.
- Reducing the time taken to administer your estate after you have died. Fewer complicated assets, such as houses, in your estate generally mean less time is required to manage the estate after your death.
- If you become unable to manage your own affairs due to incapacity, the asset would not need to be dealt with for you as it would be owned by someone else. This means it would not need to be part of any Deputyship Order made by the Court of Protection, or, if you had
Some of the possible risks include:
- Having the value of your home still taken into account for inheritance tax and care home fees, as described above.
- Incurring an inheritance tax during your lifetime from the transfer of the asset.
- No longer owning the asset and so being unable to sell it in the future if you needed to release some money from it. You’ll also no longer control the asset and so if you’ve given away your house, you may be unable to downsize in the future.
- Having the asset owned by someone else. If the person who receives your gift gets into financial difficulty or divorces, the asset (which now belongs to them) would be taken into account in any financial or divorce settlement. If you gifted them your house, you could end up homeless. Additionally, if the relationship between you and the recipient deteriorates, they would have no legal obligations towards you regarding the asset. Again, if the asset is your home, this could have serious consequences.
- Being unable to afford the standard of care you would like, if you require care in future. When a person’s care is funded by the state due to owning limited assets of their own, the local authority only has to pay for basic care. This means that you may have less choice about which care home you would move into and the standard of care that you would receive.n as a basis for any decision or action without the appropriate legal advice, tailored to your individual.
- Incurring a capital gains tax charge. Whilst a gift of a particular asset may reduce your inheritance tax bill, it could create a charge to capital gains tax instead. Even if you are not selling the asset, the transfer.
There are many different aspects to be considered. Some of these considerations, such as those relating to tax, can be technical and difficult to anticipate without specialist knowledge. If you are considering gifting a valuable asset, it is important to seek advice about your own situation so that you can make an informed decision.