Hold onto your house

Giving away your home to avoid Inheritance Tax or care home fees doesn’t work, says Paul Lewis

Georgian style red wooden door

Many people worry about two things that are unlikely to happen to them.  First, Inheritance Tax, which less than one estate in 20 pays. Second, having to sell their home to pay care home fees. Only one in five of us dies in a care home and if we have a partner not in care, then our own home is protected anyway.

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Nevertheless, I am often asked, “Should I give my home to the children now to avoid Inheritance Tax or paying for care home fees?” No. If you give away your home, even partly to increase your entitlement to help from public funds, then the local council can ignore that gift and treat your home as if you still owned it. It would count as capital and you would have to pay your care homes fees.

Some firms make a lot of money selling schemes to “protect” homes. They cannot work because once you have had that thought of taking some action to get more public money, any scheme is scuppered, even if the home is put into a trust. Save your money. And remember if you, your spouse or partner, or a relative over 60 or severely disabled remains in the property, its value is ignored.

Finally, even if your home is left empty, you can generally get the bill deferred until after you die.  Giving away your home does not stop Inheritance Tax, either. It is
then called a “gift with reservation of benefit” and the taxman can treat it as if you had never given it away. If you avoid that by paying your child a market rent, then they will end up paying income and Capital Gains Tax. And if they go bankrupt or divorce, the house you live in could be sold as their asset.

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Nowadays, there will not be any Inheritance Tax to pay on a typical family home. If you leave your home to a descendant, Inheritance Tax does not normally start until your total estate is £500,000 – and it is £1 million if you are already widowed or a bereaved civil partner. As for trusts, leave them to the extremely rich.