If you are considering giving your home or another significant asset away, make sure you receive impartial advice about both the advantages and risks before doing so. Some individuals may receive advice from non-solicitor advice services but unfortunately those services often provide improper advice about the gifting of assets, claiming to avoid Inheritance Tax or care fees. These services also tend to charge significant fees but sadly the schemes involved very often turn out to be ineffective.
“I regularly see a number of clients who are keen to give assets away to mitigate their Inheritance Tax position or to protect their estates from care home fees in the future but unfortunately they are not aware of all of the risks involved. My duty is to explain both the disadvantages as well as the benefits, but no professional should advise a client whether or not to give away an asset; it is for the client to reach their own decision, having considered all of the pros and cons involved and having taken into account their own personal circumstances.” says Nina Sperring, solicitor at the Chester law firm.
Some of the advantages of gifting assets
- The share in the asset that you no longer own may not be taken into account if you have to undergo means testing for benefits or publicly funded services such as care fees
- It may provide you with reassurance for the future – knowing that the beneficiary has already been provided for.
- It may make matters easier when it comes to administering your estate when you pass away.
Some of the risks of gifting assets
The Law as well as Governmental Rules regularly change however some of the risks involved at this moment in time are:
- There may be tax implications if your property is sold for more than it is worth at the time the gift is made. Furthermore, if an asset has been gifted and you continue to retain a benefit (for example if you continue to live in your home after it has been given away) then this could be treated as a Gift With a Reservation for Inheritance Tax purposes. The Government also introduced an additional tax in 2004, which seeks to catch schemes that previously escaped the Gift With a Reservation rules. This is known as ‘Pre-owned Asset Tax” and has the effect of charging income tax on assets where the individual continues to enjoy/occupy the same.
- The full value of the gifted asset could still be taken into account for funding long term care as there are anti-avoidance measures in relation to means testing. The anti-avoidance framework states that if you transfer assets, such as your home, into someone else’s name in order to deliberately avoid Care fees then the Local Authority can treat the value of the asset as part of your capital when they are means testing.
- If you move into a home but do not have the financial resources to pay for your care because of the gift of property then the Local Authority may only pay for the basic level of care which would no doubt leave you in a position where you would need the financial support of others. You should normally be sure that you have sufficient liquid assets available to fund your care to ensure that you do not suffer any hardship as a result of transferring your property.
It is therefore important that if you are considering giving assets away that you seek professional advice from a solicitor so that you are fully informed of all of the risks and advantages involved. By using a solicitor you could save your estate and beneficiaries a great deal of potential difficulty in the future.
For more information or for professional legal advice, contact our solicitors on 0800 988 3674 or email advice@bartletts.co.uk
