My husband is in a care home and is unlikely to return to live in the family home, where I now live alone. We own the property as “tenants in common” and are in our late 70s. Would there be any tax or other pitfalls in gifting his half-share to our children? Would this reduce my husband’s estate and could it also be a way of keeping this value out of the hands of the local authority with regard to funding care costs?
Matthew Hansell, private client partner at Mills & Reeve solicitors, says that a considerable inheritance tax (IHT) saving could be achieved for the benefit of your children.
A lifetime gift by your husband of his share of your home would be exempt from IHT once he has survived the gift by seven years. There might also be some saving were he to survive by at least three years, as the rate of IHT can be reduced – the more years survived, the larger the reduction.
Such lifetime gifts are also possible if couples hold properties as joint tenants – a tenants in common structure only becomes advantageous at death, where it allows you to leave your half-share to someone other than your surviving spouse.
The starting point should be to add up the total value of your and your husband’s assets, including the house. Your combined estates would only be liable to inheritance tax if they exceed the IHT threshold, currently £650,000 for married couples. The excess would then be taxed at 40 per cent.
If, after making the gift, your husband returns to live in the family home, he will be treated as continuing to own the property, which would then be subject to IHT as part of his estate on his death. This anti-avoidance rule would not apply if your husband does not return to live in the family home.
However, a direct gift to the children would put the property at risk of having to be sold in the event of a child getting into financial difficulties or getting divorced. For your protection, therefore, it would be better if the gift were made into a trust. You could be the trustee so as to retain control. This could also help your children’s own IHT planning position by keeping those funds outside their estates.
In other words, the trust could be for the long-term benefit of the family as a whole. Trusts have long been known to be the best structure for holding and protecting family wealth.
If your husband’s half-share of the house is worth more than the current nil-rate band threshold of £325,000, he might wish to restrict the share of his half of the house passing into the trust to that value in order to avoid the immediate 20 per cent IHT charge which is otherwise levied on substantial lifetime gifts.
Gifting your husband’s share of the property might also help safeguard the asset when claiming state support for care or nursing home fees, particularly with you still living in the property.
However, you should be aware that there are anti-avoidance rules that say that where an individual has deliberately deprived himself of assets with a view to making a claim, those assets can be counted as still owned by the claimant.
The advice in this column is specific to the facts surrounding the questions posed. Neither the Financial Times nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
