Dangers of signing over property to your family. Quality advice from our tax partnerMake Text Bigger
Signing a home over to family is not an easy solution to tax problems or trying to avoid paying for care in your old age.
In many cases, the switch in owners can cause more issues than the action was meant to solve.
If the property is your main home and you transfer the ownership, a third party could force a sale leaving you without anywhere to live if the person you transferred the property to has a divorce or is declared bankrupt.
Assuming your family already lives in their own home, they will also have to pay capital gains tax on any gain in the transferred property when they come to sell.
The transfer cost is taken at full open market value of the property regardless of any agreed discount to any ‘connected person’, which covers most blood relatives and their spouses and families.
This means they pay tax on the property’s full value when they acquired it and not any cheaper price.
Any time they lived in the property but were not an owner does not count towards principle residence relief (PRR) for capital gains tax purposes.
If they do move in to the property as their main home, they will earn PRR from that date.
To add some more bad news, the transfer is not an inheritance tax solution unless you pay open market value rent for continuing to live in your home.
If you are looking to transfer your home out of your ownership to avoid paying council care home costs, then the council could make a case for an order to unwind the transfer because the switch was a deliberate attempt to evade your bills.
Many property owners also consider transferring a rental home to children under 18 years old – this is another financial disaster as the taxman will simply consider the parents are still in charge of the youngster’s affairs and any tax due on income or gains is due from them, not the youngster.
Property income is another issue to consider in a property transfer.
The general rule is tax follows ownership of an asset, so if you transfer a profitable buy to let to a son or daughter, the income from the property goes with the transfer – you lose the income and the new owners are liable for the tax.
Depending on their financial circumstances, this could affect tax credits and push them in to a higher rate tax bracket.
Generally, most transfers of property to avoid tax that are not between husband and wife or civil partners do not work without professional advice from a tax adviser or estate planner.
To arrange an introduction to one of our Estate Planning or Tax Consultants please telephone our Customer Care Team on 01603 894525.
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