Quite often when we are talking to our clients, discussion turns to what will happen to their “stuff.” One of the most common concerns is the house, which for most people is usually 90%+ of what they’re worth. They want to protect it and pass it on; after all it took them 25 years of hard work to pay for it. One of the top questions we are asked is “Should I transfer ownership of my house to my child now?”
Whilst some might believe this is a practical solution, and it is something we hear people do all the time, in reality it often isn’t.
What will happen if I transfer ownership?
Assuming you will continue to live there (after all, it is “your” house) there are the following things to consider.
The tax man (HMRC) will look to see who is getting the benefit from that arrangement.
- If you are living there rent free (it is likely that your children aren’t going to charge you) then you are getting a benefit in kind. Let’s assume the house would rent for £750/month or £9,000/year then you will get a tax bill based on that £9,000.
- If your children do charge you (only on paper) then they are taxed on an extra £9,000 of income.
- If you pay them the money and they give it back to you, guess what? The tax man’s got that covered as well; they have access to the information about all UK bank accounts.
If you are unlucky enough to have to go into residential care then the Local Authority are required to assess your assets to see what you can be made to pay towards your care.
- You say to them – we don’t own a house, we gave it away.
- They reply – “yes we know and we are transferring it back to you, you broke the law when you did it.”
- Now your house is up for grabs.
When you sell your home you don’t pay any tax on it, no matter how much it has gone up in value. Except now of course, despite you still living there it is no longer your home, it is owned by somebody else.
- For them it isn’t a home it is a second property, when you sell a second property the tax man takes a very close look at it.
- For example, if you gave it away 10 years ago when it was worth £100,000 and it’s now worth £200,000 then they made £100,000 profit. That is called a “gain” and is taxable.
- If they earn less than £45,000 a year the tax is £18,000
- If they earn more than £45,000 a year then the tax is £28,000
So the moral of the story is – don’t do it.
So how do I protect my property without transferring ownership?
There are many ways to protect your house which we will be happy to discuss with you. These can have additional benefits for your children and future generations that transferring ownership doesn’t provide. To get advice about protecting your property, complete the form below.