Tuesday, 18 November 2014

Gifting The Family Home - The Pitfalls

Gifting the Family Home to Your Children – A Strategy for Disaster.

Family Home‘Give your home to your children and all of your Inheritance Tax and Care Fees problems are

solved’– this is the classic advice given to many people by a mate in the pub. Sadly it is one of the most dangerous pieces of advice that anyone can give, or act on.

There are five major drawbacks to giving away your home to family members:

Loss of Control: If you gift your home to a family member you might have faith that your children will do the right thing for you in later life, but you have no way of being certain. If you need to sell or downsize, you will need their permission and they will act for you. If you need extra income in retirement then giving your family home to your children will stop you from taking equity release. In extreme circumstances, your children could rent out the spare rooms and receive an income, and you couldn’t stop them.

Gift with Reservation of Benefit (GROB): If you give away the family home, but you continue to live in it you fall foul of the GROB rules which means that HMRC will set the transaction aside for Inheritance Tax Purposes, and the Local Authority can set aside the transaction as deliberate deprivation for the purposes of care costs. The only way to get around this rule is for you to pay a full market rent to the new owners (your children), who will then need to declare the income and pay income tax on it. You should note that doing this only resolves this issue, you are still subject to the other 4 drawbacks.

A Child's divorce can mean you lose your assetsDivorce: If one of your children gets divorced, your home is a part of their assets and will form a part of their divorce settlement, in the worst case this could mean that your children have to sell your home or raise a mortgage against it to pay off their ex-spouse.

Bankruptcy: If your child is declared bankrupt, your home is a part of their assets and will be seized and sold by the Trustee in Bankruptcy to settle your child’s debts. This will leave you homeless, forced to move out of the family home, potentially into rented accommodation.
Tax drawbacks
Tax: If you give your home to your children, it crystallises the value of the property for the purposes of Capital Gains Tax. This means that if the children go on to sell the property for a higher value they will pay capital gains tax on the difference. But it is worse than that, because you have fallen foul of the GROB rules (above) the full value of the property is still in your estate for Inheritance Tax purposes which gives the potential for the home to be taxed twice.

In simple terms – don’t do it. There are ways in which the family home can be passed to future generations, but you must always take professional advice. Call 01778 382723 or click www.will-probate.co.uk for help. 

Wednesday, 12 November 2014

Are you Dementia friendly?

This October I became a Dementia Champion as part of the Alzheimer Society’s Dementia Friends initiative. This now allows me to run information sessions where you can a learn little more about what it’s like to live with dementia, and you are then encouraged to decide on one action that you will take as a result of your new understanding of dementia. The five key messages are stressed throughout the session:
1. Dementia is not a natural part of ageing.  
Dementia Care2. Dementia is caused by diseases of the brain.
3. It is not just about losing your memory.
4. It is possible to live well with dementia.
5. There’s more to the person than the dementia.
As the head of a company that often deals with people living with varying degrees of dementia, I wanted to find out more and make some kind of commitment to understanding dementia and to take some positive action, and this is exactly what Dementia friends is all about. The Alzheimer Society’s aim is for there “to be a million people with the know-how to help people who are living with dementia feel understood and included in their community”. My personal aim is to pass on the information to as many fellow professional advisors as I can, so that we can all make what we do more dementia friendly.

I am planning to host sessions for groups of interested people on a monthly basis, alternatively  if you would like me to run a group presentation for your organisation please give me a call and we can set something up. The information sessions only last for about an hour, if you would like any further information on the session dates please call 01778 382723, check out the Dementia Friends Session dates on our website www.will-probate.co.uk/dementiafriend or follow on Twitter @Willbroker