Gifting money to children
Discussion
Just thinking off top of my head. I know that avoiding care home fees and tax is illegal but we also know that there are legal loopholes. What’s the best way for someone to legally avoid paying care home fees?
Say someone has a house worth £200-250k and <£20k in savings, 2 adult children. The person in question is likely to live over 7 years?
Gifting money to children through something like equity release? If so is there an upper limit on amount than can be gifted each year?
Transfer house into kids names?
Both kids likely higher rate tax payers, if that makes a difference.
Who would be best placed to offer advise on this? A financial advisor?
Say someone has a house worth £200-250k and <£20k in savings, 2 adult children. The person in question is likely to live over 7 years?
Gifting money to children through something like equity release? If so is there an upper limit on amount than can be gifted each year?
Transfer house into kids names?
Both kids likely higher rate tax payers, if that makes a difference.
Who would be best placed to offer advise on this? A financial advisor?
GT03ROB said:
If you gift the house I believe you will also need to demonstrate the children have beneficial interest in the property to avoid IT. These means they have to live in it not you. If you live in it you would need to pay them market rent.
Estate that size I would think no IHT?wisbech said:
GT03ROB said:
If you gift the house I believe you will also need to demonstrate the children have beneficial interest in the property to avoid IT. These means they have to live in it not you. If you live in it you would need to pay them market rent.
Estate that size I would think no IHT?also worth adding that the 7 year rule tapers, so if you die in 5 years time you are only liable to a smaller %.
and as suggested above, the estate is less than the iht threshold anyway.
the threshold goes up if you pass the house to your kids - by 150k increasing yearly
and you can combine iht between a married couple if the first to die passed all of it to the survivor - so a marriage couple who pass everything to the kids could have a iht pot of around £900k
and as suggested above, the estate is less than the iht threshold anyway.
the threshold goes up if you pass the house to your kids - by 150k increasing yearly
and you can combine iht between a married couple if the first to die passed all of it to the survivor - so a marriage couple who pass everything to the kids could have a iht pot of around £900k
Good luck OP!
The rules around deprivation of assets have you well covered (Care Act 2014), as is only right.
https://www.ageuk.org.uk/globalassets/age-uk/docum...
The rules around deprivation of assets have you well covered (Care Act 2014), as is only right.
https://www.ageuk.org.uk/globalassets/age-uk/docum...
Edited by DoubleSix on Friday 7th June 06:51
wisbech said:
Couple of risks to be aware of if you gift the house away - divorces and/ or bankrupt kids. No fun having the house sold from underneath you.
Yes, an estate planner should be talked to (normally a lawyer not an FA as these are more legal tax issues)
Thanks. Appreciate this is one of the risks here. Yes, an estate planner should be talked to (normally a lawyer not an FA as these are more legal tax issues)
eliot said:
also worth adding that the 7 year rule tapers, so if you die in 5 years time you are only liable to a smaller %.
and as suggested above, the estate is less than the iht threshold anyway.
the threshold goes up if you pass the house to your kids - by 150k increasing yearly
and you can combine iht between a married couple if the first to die passed all of it to the survivor - so a marriage couple who pass everything to the kids could have a iht pot of around £900k
Thanks. Didn’t realise that the threshold tapers. and as suggested above, the estate is less than the iht threshold anyway.
the threshold goes up if you pass the house to your kids - by 150k increasing yearly
and you can combine iht between a married couple if the first to die passed all of it to the survivor - so a marriage couple who pass everything to the kids could have a iht pot of around £900k
DoubleSix said:
Good luck OP!
The rules around deprivation of assets have you well covered (Care Act 2014), as is only right.
https://www.ageuk.org.uk/globalassets/age-uk/docum...
Thanks. That’s very informative. The rules around deprivation of assets have you well covered (Care Act 2014), as is only right.
https://www.ageuk.org.uk/globalassets/age-uk/docum...
Edited by DoubleSix on Friday 7th June 06:51
I’m concluding that gifting assets isn't a crime, and if the house was sold whilst still in demonstrable good health (member of walking clubs, still work part time etc, no diseases or diagnoses on the immediate horizon) then one should be ok to gift these.
So I’m thinking, sell the house to the kids and rent it back off them. Gift them about £75-100k each which will leave approx £50k in cash to pay them rent and pay for holidays etc.
The gift of £75-100k each is to help them as they both have young families and large mortgages. It’s unlikely that the parent will be in a home in under 10 years therefore the gift is simply to help the kids, as opposed to wilfully reducing assets. Should hopefully stand up to scrutiny based on the above document.
Obviously the usual warnings such as kids turfing parent out or divorcing have been noted.
Anything else I’m missing here? Obviously will be seeking proper advice but it’s good to get a handle on the possible options before sitting down with someone.
Edited by JapanRed on Friday 7th June 07:45
Edited by JapanRed on Friday 7th June 07:49
brickwall said:
JapanRed said:
So I’m thinking, sell the house to the kids and rent it back off them. Gift them about £75-100k each which will leave approx £50k in cash to pay them rent and pay for holidays etc.
Anything else I’m missing here?
Not sure this works.Anything else I’m missing here?
Edited by JapanRed on Friday 7th June 07:45
Edited by JapanRed on Friday 7th June 07:49
- Sell house to kids, at market rate. Where do the kids find ~£200k to buy the house? You then gift £150k back to the kids, so you've got your £50k to pay rent/holidays etc., but the kids are still £50k down and one house up.
- "Sell" house to kids, for very minimal amount. Kids now own the house. If they want £75k in their pocket they'll need to sell said house. They'll get rent, though.
The only way to achieve what you say is
- Sell house to 3rd party
- Hope that 3rd party allows you to rent it off them
- Gift the sale proceeds (minus whatever) to the kids
Downside is you are now at the mercy of a 3rd party landlord who could turf you out.
What about just gifting them the house? And then asking them to remortgage it for a minimal sum and give the parent £50k back? Would they still pay second home stamp duty?
JapanRed said:
Fair point. Also they would be liable for second hone stamp duty which I’d not thought of.
What about just gifting them the house? And then asking them to remortgage it for a minimal sum and give the parent £50k back? Would they still pay second home stamp duty?
But how does that benefit them? You're giving them equity in a house they already have equity in, assuming they'd be left the house in the event of your death. They'd then also be having to pay back a £50,000 loan.What about just gifting them the house? And then asking them to remortgage it for a minimal sum and give the parent £50k back? Would they still pay second home stamp duty?
And yes they would be liable for second home stamp as they would own two houses each.
ThorB said:
JapanRed said:
Fair point. Also they would be liable for second hone stamp duty which I’d not thought of.
What about just gifting them the house? And then asking them to remortgage it for a minimal sum and give the parent £50k back? Would they still pay second home stamp duty?
But how does that benefit them? You're giving them equity in a house they already have equity in, assuming they'd be left the house in the event of your death. They'd then also be having to pay back a £50,000 loan.What about just gifting them the house? And then asking them to remortgage it for a minimal sum and give the parent £50k back? Would they still pay second home stamp duty?
And yes they would be liable for second home stamp as they would own two houses each.
Such a small estate would completely disappear in just a few years of care.
Oakey said:
If you put the house in their names what happens if one / both kids situations change? For example, a divorce?
I think you need to be looking at a trust?
The divorce scenario is one I’m looking into. I think you need to be looking at a trust?
Sorry if this is a daft question but how does a trust work and how would it avoid care home fees?
JapanRed said:
The divorce scenario is one I’m looking into.
I'd look into it very carefully. A mate has just had his divorce finalised. We had no idea there were any issues with the relationship and it was 3 months after he'd been gifted a house that his wife saw an opportunity to get out with a substantial amount of cash. Don't think she'd thought about it before, but suddenly she knew she had the finances for an easy exit. His family employed barristers to try and get the money back but to no avail.If there are any worries on that front make sure the house is ring fenced in some way.
OP, the whole idea is barking. You want to move remove your assets from the risk of possible care home fees and IHT.
As there's no possible IHT liability at present and, from what you've posted very unlikely there'll be any in the future as you need an estate to be at least £500k, if you're not married or £1m if you are, the only issue is care homes fees.
You say these are unlikely at present so, all you'll do with this plan is increase the family's tax burden.
The house will be subject to capital gains tax if/when sold by the children as they're not living in it. There may also be income tax due on the rental income, assuming it is at market rent. Finally stamp duty as already mentioned.
On top of that, if a mortgage is required there will be the interest on that to pay.
Finally, as far as I know, there is no trust that allows an asset to escape care home fees. Many have been advertised, but they have all failed when challenged.
As there's no possible IHT liability at present and, from what you've posted very unlikely there'll be any in the future as you need an estate to be at least £500k, if you're not married or £1m if you are, the only issue is care homes fees.
You say these are unlikely at present so, all you'll do with this plan is increase the family's tax burden.
The house will be subject to capital gains tax if/when sold by the children as they're not living in it. There may also be income tax due on the rental income, assuming it is at market rent. Finally stamp duty as already mentioned.
On top of that, if a mortgage is required there will be the interest on that to pay.
Finally, as far as I know, there is no trust that allows an asset to escape care home fees. Many have been advertised, but they have all failed when challenged.
brickwall said:
So plan would be
- Parents gift kids the house. Kids pay 2nd home stamp duty.
- Kids now own the house, so the parents would need to pay rent.
- Kids take out a £50k (BTL) mortgage, and give money to the parents. Kids pay ~2% on the loan, so £1k p.a.
- Parents pay kids rent (say £8k p.a.).
Most BTL mortgages will however preclude you from renting to relatives as I understand it.- Parents gift kids the house. Kids pay 2nd home stamp duty.
- Kids now own the house, so the parents would need to pay rent.
- Kids take out a £50k (BTL) mortgage, and give money to the parents. Kids pay ~2% on the loan, so £1k p.a.
- Parents pay kids rent (say £8k p.a.).
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