While there are some benefits to making a gift of your family home, there are some potential pitfalls of which you should be aware.
Inheritance Tax
Avoidance of Inheritance Tax is often the reason for wanting to give away assets including the family home. To avoid the tax, you must survive the transaction by seven years, during which time you must pay market rent to the recipients of your gift for the entire time that you live there. Unless you pay rent, you will be deemed to have made a “gift with reservation of benefit” and will still be considered the owner of the property for the purposes of Inheritance Tax.
Capital Gains Tax
If they do not live with you in the property, Capital Gains Tax may become payable by the recipient when the property is eventually sold.
You will not be able to access the equity or capital from the property once you no longer own it. You would therefore not be able to access an equity release plan or use the capital should future family needs require.
Care Fees
If you have given away property before seeking financial assistance from your local authority for your care, they may well question your reasons for making the gift. Should they deem your motivation to be trying to avoid care fees, you may be treated as if you still own the property and there is no time limit after which this might not be considered. You may not wish to pay for your care needs as you get older, but you will be in a better position to choose what care you do receive if you pay for it compared to what is offered by the local authority.
Other Considerations
The person to whom you gift your home would avoid the burden of a probate application when you die. However, they may in the future have their own financial or matrimonial difficulties, or even die before you. Your gifted home would be considered an asset which could be used in any future claims against them or their estate.
Gifting your property to a trust would protect you from some of the above issues, and may provide you with a degree of control and protection, but there is still the risk that your local authority may still treat you as if you own the property.
If you do decide to gift your home, make sure you get good advice from a reputable company first.