Should I Transfer Ownership Of My House To My Child?

Exposing the myths around transferring home ownership…

Quite often when we are talking to our clients, discussion turns to what will happen to their ‘stuff’.

The biggest concern is often for the house which, for most people, is worth more than 90% of everything they have. Understandably, they want to protect it and pass it on; after all it took years of hard work to pay for it.

One of the top questions we are asked is “Should I transfer ownership of my home to my children now?”

Whilst this might look like is a practical solution, and it’s something we hear people do all the time, in reality it often isn’t the best answer.

So, what will happen if I transfer ownership of my home?

Assuming you continue to live there (after all, it is ‘your’ house), these are the things to consider.

The tax man (HMRC) will see who is getting a benefit from the arrangement.

1. If you live in the house rent free (it’s likely your children aren’t going to charge you) then you are getting a benefit in kind.
   You can expect to get a tax bill based on the rent the property should achieve, let’s assume in this case £750/month or £9000/year. You would be taxed on that £9000.
2. If your children do charge you (even if it’s only on paper), they have an extra income.
   Your children will be taxed for that income, using the same example as above, they would be taxed on £9000.
3. If you pay the rent, and your children give it back to you, guess what? The tax man’s got that covered as well.
   HMRC have access to information about all UK bank accounts – the money will be taxed.

It won’t protect your home if you go into residential care.

1. The Local Authority will assess your assets to see what you can pay towards any costs when residential care is needed. Transferring your home won’t guarantee its value isn’t included.
2. You might say – “We don’t own a house, we gave it away”. But, they will probably reply – “Yes, we know. We’re transferring it back to you, and you may have broken the law by doing it.”
3. Now your house is up for grabs, to be counted as an asset when considering who pays for your care.

When selling your own home, you don’t pay tax for an increase in value. But when there is a second property, the rules change.

1. Because you have transferred ownership, your children now own two properties. Theirs and yours!
2. At some point in the future it is likely that your children will sell the house.
3. When you sell a second property the tax man takes a very close look at it. Any increase in the value of the property since it was gifted is regarded as profit. And is taxable!
   
4. If your children earn less than £45,000 a year the tax is 18%. That’s £9,000 if the house has increased in value £50,000.
   
5. If they earn more than £45,000 a year then the tax is 28%. That’s £14,000 if the house has increased in value £50,000.

As you can seen there could be a significant financial impact on your children and for yourself too.

So, how do you protect your property without transferring ownership?

At Wellingborough Wills we are experts at making sure your home is protected for your children and future generations, with options that often have additional benefits transferring ownership does not provide.

Securing your home and making sure you avoid the traps highlighted here, is our priority.

For more help call us on 01933-213450 or send us a message below.