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Unwrapping the legal implications of gifting property

Sussex-based law firm Mayo Wynne Baxter is urging people who decide to gift their home to reduce inheritance tax, or to prevent it being used to pay for care, to be aware of the risks.

Research by the law firm has found that some 75% of people have not discussed their parent giving money away to avoid care costs. The research revealed only 11% have discussed the possibility in earnest, and only 10% bringing up the subject casually.

The survey also found that 75% of people had neglected to talk with their parents about giving money away to reduce inheritance tax.

Matt Parr, private client partner at Mayo Wynne Baxter
Matt Parr, private client partner at Mayo Wynne Baxter

Matt Parr, private client partner at Mayo Wynne Baxter, said breaks it down.

“What was interesting about our research was that wealthier people were almost four times as likely to have discussed this topic with their parents, whether that was giving away some or all of their property or money to avoid inheritance tax or care costs.

“In total 21% of those earning between £65k-£75k and 17% of those earning more than £75k had formally discussed this.

“However just 6% of those earning less than £15k and 5% of those earning between £15k-£25k were found to have had these conversations.

The risks involved

“It is rarely advisable to give your main residence to anyone else while you still intend to live there. Having said that, it is entirely possible to do it. Our job is to adequately advise about the risks during your lifetime as well as the possibility that such a gift will not be effective for reducing your estate’s tax liabilities.

“Giving property away for any reason means the owner gives up rights in the value of the property – once given away, they lose control of it.

“There are also many practical and tax points to consider before making such a big decision and expert advice should be sought. No longer owning the property means that when the original owner dies there will be no inheritance tax on the property.

“However, this is provided the individual lives for seven years from the date of the gift and provided they continue to pay a full market rent to the new owner to live there. This rent cannot be a peppercorn rent and must be reviewed each year.

Other advantages

“Other advantages include the certainty that the new owner can live in the property when the original owner dies and that executors will not need to obtain a grant of probate after the person’s death to deal with the ownership of the property.

“Disadvantages of gifting a property include having to pay a full market rent to ensure the gift is effective to reduce inheritance tax, even after seven years have passed, which could impact the original owner’s standard of living.

“Many factors play into reducing inheritance tax, such as the value of all gifts within seven years of a person’s death and sometimes 14 years before death, so advice must be sought.”


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