Family home protection
There are many reasons why you might consider transferring ownership of the family home.
Often, in the forefront of people’s minds is to protect their main asset from means testing for eligibility for long term care.
However, there are pitfalls in transferring the family home which include:
- The loss of control over your main asset, your home
- Factors outside your control which could affect your ability to stay in the house including the divorce of the person you have transferred your home to or their death or bankruptcy
- Anti-avoidance provisions which may be in place to help a local authority if it believes that the transfer of the property was made specifically to avoid its value being taken into consideration in the financial assessment for long-term care. Such provisions apply regardless of the length of time that has elapsed since the gift was made.
- Capital Gains Tax (CGT) – if the person who you transfer your home to does not live there, they will be liable for CGT on any gain in value of the property between the date of transfer and the date upon which the property is sold. This is because they will not be able to take advantage of the Principal Private Residence Exemption.
There are ways of reducing the impact of the above pitfalls but transferring your property remains a drastic step to take
Although the value of the property cannot be taken into consideration while one of you is living in the family home, problems can arise once one of you dies.
If the survivor needs long term care, the entire value of the property can be used to fund that care.
While there is no magic wand to protect the whole of the family home from means testing for long-term care, it is possible to protect up to a one-half share of its value from being used to pay for long term care by putting in place wills which include trust arrangements to protect a share of the property.
How does this work?
A will trust operates so that the share of the property which belongs to the first of you to die is gifted into a trust.
The terms of the trust allow the survivor to live in the property, and indeed to move to a new property if desired, while ring-fencing that share of the property from being taken into account by the local authority if the surviving owner needs long term care.