What happens if I give away my assets?

Give away my home to my child

Many of us are aware that if we need care in our old age, we may have to fund it ourselves. This can substantially reduce the amount we can leave to children or grandchildren on our deaths.

You may also be conscious that if the value of your estate is greater than £325,000, it will be subject to inheritance tax. This is payable at 40% on any amount over £325,000.

With the prospect of expensive care fees and inheritance tax taking a chunk out of what we’ve worked so hard to acquire, it’s not surprising that some people try to gift away their property during their lifetime in the hope of avoiding the clutches of the Local Authority and the Taxman. But is this an effective strategy?

Care fees

If you or your partner need care in the future, the Local Authority will look at your assets to determine whether you can afford to pay the care fees yourself.

  • If you have assets over £23,250 including the value of your home, you must pay the full care fees yourself.
  • If your assets are between £14,250 and £23,250, the local authority will expect you to contribute towards your care fees, and they will make up the shortfall.
  • If you own less than £14,250, the Local Authority will pay the fees in full.

Some people try to gift away assets before they need care so that the assets won’t be included in the means assessment.

However, if you gift away the bulk of your estate and then need care, the Local Authority will generally still count the value of the property you gifted away when assessing whether you can afford to pay for your care.

Gifting property to avoid care fees is called ‘deliberate deprivation’. This includes either giving away the property, or selling it for much less than its true value.

Not every disposal of assets will be seen as deliberate deprivation. It depends on:

  • Motive/intention
  • Timing
  • Amount

Certainly the gift would also have to be genuine – for example, if you “give” away your home on paper but continue to live in it, it would almost certainly be regarded as deliberate deprivation. Likewise, if you “give” away investments but continue to benefit from the income they generate, it is unlikely the Local Authority would disregard their value when performing a means test.

Ultimately the question is, when you made the gift, could you have reasonably known that you might need care? If so, this would suspiciously look like ‘deliberate deprivation’.

Modest gifts are unlikely to be considered – it is more expensive and valuable assets that can cause an issue.

Some people get confused about the 7 year rule – this has nothing to do with assessment for care fees. The 7 year rule relates to inheritance tax and this is explained below.

What you can do:

  • Download Age UK’s factsheet to find out more about deprivation of assets
  • You can set up a trust during your lifetime for your assets but you should not do this in contemplation of avoiding care fees. You could, for example, put investments in trust to pay for your children’s future school fees. However, if you are already suffering from ill health and the prospect of care is on the horizon, there is a good chance the Local Authority would still take the investments into account when assessing your means.
  • Ensure any gift you make is a genuine gift – i.e. the title passes to the recipient, they benefit fully from the gift and you don’t benefit in any way. However, if you are already suffering from ill health and there is a possibility you might need care in the future, do not try to gift away your property to avoid care fees. It is too late and it will almost certainly be regarded as deliberate deprivation.
  • Beware of unscrupulous companies that claim they can help you shelter all your assets from care fees in a lifetime trust – for thousands of pounds in fees. You should only take advice from a properly qualified and experienced professional – for example, a full member of the Society of Trust and Estate Practitioners, a Fellow of the Institute of Chartered Legal Executives or a Solicitor specialising in estate planning.
  • If you are a couple, make sure you own any property as tenants in common and use your Will to create a trust. Give your partner use of the property during their lifetime, then leave it to your choice of beneficiaries. If your partner needs care after your death, your share of the assets won’t be considered when the Local Authority performs their means test.

Speak to our qualified, experienced team for further advice now. Call us on 0800 788 0500 or email support@aprilking.co.uk to make an appointment.

Inheritance tax: The 7 year rule

Another huge motivation for gifting your property during your lifetime is to avoid paying inheritance tax. The basic inheritance tax allowances – and the new ‘Residence Nil Rate Band’ – are explained here.

If you gift assets but then die within 7 years of making the gift, it will still be counted as part of your estate. Inheritance tax on the value of the gift is payable at a tapered rate:

  • Gift made less than 3 years prior to death – 40% inheritance tax on value
  • Gift made 3 to 4 years prior to death – 32% inheritance tax on value
  • Gift made 4 to 5 years prior to death – 24% inheritance tax on value
  • Gift made 5 to 6 years prior to death – 16% inheritance tax on value
  • Gift made 6 to 7 years prior to death – 8% inheritance tax on value
  • Gift made 7 or more years prior to death – 0% inheritance tax due on value

As above, it’s important to appreciate that gifts must be genuine. You cannot gift your house and continue to live in it, or gift an investment property but continue to benefit from the rent.

Some gifts are exempt from the 7 year rule. You can give:

  • Up to £3,000 of gifts per tax year (if you don’t use this allowance, you can carry it forward for one year only)
  • Wedding/civil ceremony gifts – up to £1,000 per person, £2,500 for a grandchild/great grandchild or £5,000 for a child
  • Normal gifts out of your income (Christmas presents, birthday presents etc) provided that you can still maintain your standard of living after making the gift
  • Payments to help with another person’s living expenses (e.g. a child under 18, or an elderly relative)
  • Gifts to charity, or to a political party
  • Small gifts of up to £250 per person – as many times as you like in the tax year provided you have not used up another exemption on the same person.

For the above list, it makes no difference whether you survive for 7 years after making the gift or not.

See the Government’s guide on Inheritance Tax: Gifts for more information.

For the balance of your estate, you should consider setting up a trust using your Will. Trusts allow you to keep your share of the assets in the family. Additionally, as noted in the above section on ‘Care Fees’, if you leave your assets in trust for your partner’s use during their lifetime, the Local Authority cannot take them into account when conducting a means test. This means your share of the family’s wealth won’t dwindle away on fees, should your partner need care in the future.

Speak to us

Speak to our team about making a Trust in your Will to shelter your assets from care cost fees. Call us on 0800 788 0500 or email support@aprilking.co.uk to make an appointment with your nearest office. We also have a free information pack which you can order by clicking here.

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