Dare I transfer property?
We have many clients come to see us to talk about transferring property to deal with mortgages, to pay debts, to try and avoid inheritance tax, care fees etc.
There are many complex issues to consider but I like to think of these as the many “Ds”.
To explain I set out the many factors that are relevant:
Is the transfer at the persuasion of a third party such as a relative? There can be an accusation of undue influence and if proved the transaction can be set aside. In a recent case of Paull v Paull heard in 2018 a Father had transferred his house to his son, but it was set aside as the Father showed he had been unduly influenced by his son and the transaction was not something he would have freely entered into.
If the house is transferred to another party or a half share is left to a third party such as on death, but the person still lives there how are the repair costs to be covered? If the house is completely transferred the occupant may have no funds or if the deceased only had their half share of the house the survivor may be responsible for full repairs as set out in the Will but have no ability to pay for this.
Deprivation of Assets
If property is transferred with the intent of avoiding care home fees, then the Local Authority can treat this as if you have deliberately reduced your assets to avoid paying care home fees and they may still calculate your fees as if you still owned the assets. Age UK have useful advice here:
There is no time limit but if you gave the assets away when healthy this could be ignored but each case is fact specific.
If you give a property but still live in it or only have a life interest in a property or reduced share what if you want to downsize? If you no longer own the property you have no control over it as the transfer is irrevocable and cannot be changed. If you have a life interest or have a share only then unless the Will or Trust Deed which governs the use of the property allows you to move to an alternative property you would have to remain there.
As they say the only certainty in life is death and taxes. If you give an asset away in your lifetime but still retain an interest, such as living there or visiting for holidays, then for Inheritance Tax purposes it is added to your estate when you die to calculate the tax due as if you still owned the asset. This is called “Reservation of Benefit” and there is advice here: https://www.moneyadviceservice.org.uk/en/articles/gifts-and-exemptions-from-inheritance-tax: and https://www.gov.uk/inheritance-tax/gifts.
There is also a potential income tax liability from something called a Pre-Owned Assets tax. If someone lives in a property they sold, but not at full value, to a family member or contributed to but do not own it or their share is less than their contribution then they could face an income tax liability. This is calculated on the basis the benefit is treated as equivalent to receiving rent and paying income tax on that, even though you are not actually receiving any income.
Additionally, the beneficiary of the property may have to pay Capital Gains Tax on the asset on any increase in value.
If the owner of the property gets divorced, then despite the fact you may still be living there then it is a relevant asset to be taken into account in the divorce. You may have to apply to join in the divorce case as an Intervenor” so your interests can be put forward. This can be costly and time consuming and litigation never carries any guarantee of the outcome.
If the owner of the property becomes Bankrupt, then despite the fact you may be living there the Trustee in Bankruptcy has huge powers to force a sale. The Trustee has a duty under the Insolvency Act 1986 to try and recover assets for the creditors and this usually outweighs any occupiers’ rights, unless there are very exceptional circumstances. Often even if the occupant is seriously disabled the Court may only delay the sale not stop it altogether.
Death of owner
If the owner dies then, if they have not provided a life interest to the occupier either by a Lease for life or under a Will or Trust Deed, the beneficiaries under the Will or the Intestacy of the owner could try and force the occupier out, albeit probably needing a Court Order, to realise the asset.
As a result of the transfer not fulfilling the wishes of all the parties this can lead to disputes between them, sometimes having to involve the Courts.
So due diligence is required in deciding whether to do the Deed.
Wendy Hewstone, LLB, TEP, can advise on these issues.