Gift with reservation of benefit

A question about : Gift with reservation of benefit

Hi,

My parents gifted their house to me. It's worth less than Ј150K, I live in Scotland and I have made sure they have life rent under Scottish law. This means they can live in the house for the rest of their life and I can't remove them from it.

When I was at the Lawyers in Scotland, I asked them does that mean my parent have to pay me rent. And they said no, it's entirely up to me whether I charge them rent or not.

I don't charge them rent and don't want to charge them rent. Now I am completely away of the rules around gift with reservation of benefit, meaning that they should be paying me market rate. However as the lawyer told me the above, I am now assuming that this is different in Scottish life rent law? As they said it was up to me if I charge rent or not.

Can someone please clarify. I will go back to the Lawyer on this, however I just wondered if anyone here has knowledge of this in the meant time.

Thanks :-)

Best answers:

• Depending on the total value of your parents' estates, IHT might not have been a consideration anyway?
  What was the reason behind the gift of the house?
  https://www.caesar-howie.co.uk/servic...-tax-guide.php
  Scottish firm apparently. See Gifts with Reservation.
  Have you in effect created an interest in possession trust?
  Would this would get round the requirement to pay a market rent?
  Anybody gifted their parents' home could say that they were content for their parents to live there for life without paying rent and give them the legal right so to do through an IIP but would this get round the GWR rules?
  If it did, one would have expected to see this tried as a "tax avoidance" measure and for HMRC to have got wise to it and put rules in place to prevent it?
  However, one would have expected a Scottish lawyer to know his business although you could check with HMRC yourself?
• Hi,
  When I typed the question I wasn't considering all the relevant factors. No my parents entire estate will be under the Ј325,000, so I wouldn't expect any IHT liability.
  The primary reason for the house being transferred to my name was the avoidance of potential care home costs. However I've read into this and it's a bit of a grey area.
  There is a law in the UK that states if a gift off cash or another asset it made within 6 months of the date care is required, then the local authority can pursue the Donee to recovery money/asset towards the cost of the care home. If it's over 6 months they may also decide to investigate whether the transfer of the cash or asset was deliberate to cause deprivation of assets.
  The general consensus of what I've read on various websites including the law society is that the Local authority has to prove in court there was intention to deprive them of the asset. Which is obviously more difficult the more time has past since the gift was made. Although there is no time limit on them attaching a notional value as to the value of what the property is considered to be when considering a means tested calculation on whether to provide care or not. They would still have to prove proof of this in court. So in effect they are less likely to pursue the recovery of an asset if a lot of time has past. I don't foresee both my parents requiring care in the next 10 years, so it's unlikely the local authority could prove the above in court.
  I would also learn to represent myself, to avoid them trying to sicken me with legal bills. My parents are determined that as they have paid tax and national insurance all their lives then the cost of care should be met by the government/local authority, so if care become the last option we are doing everything possible to stop them stealing their home to pay for something they have already contributed towards.
• OP
  You might find this link about Pre Owned Asset Tax useful
  https://www.telegraph.co.uk/finance/p...ssets-Tax.html
• I've read through all your comments and I appreciate the effort those made in replying.
  To give some more information, the house is worth a maximum of Ј100,000. In 2016 the threshold for means tested care costs is going to be Ј118,000. I don't anticipate having to sell the house for 10 - 20 years. My parents health is reasonably good and they are nowhere near needing a community care assessment to determine need for residential care. And in addition to that Age UK says most old people don't require care. If one parent needs care and the other doesn't they can't touch the house. If neither need care, then they can't touch the house.
  In the unlikely, but possible event that both need care. Or the surviving parent needs care, then the council get to decide whether or not there has been deliberate deprivation of assets, and they can apply a notional value to my parent(s) estate when determining whether or not to fully fund residential care.
  Firstly, the house is not worth more than the 2016 change to Ј118,000 which will be the new threshold. Although I'm aware the government could change this in the future. The house could also be worth more than Ј118,000 in the future if it appreciates significantly in value. In which case if the local authority decides to apply a notional value to my parent(s) estate they could refuse to fully fund care costs.
  In which case I would take the matter to court, and avoid massive legal costs by self representing with granted power of attorney. The local authority then need to prove deliberate deprivation of assets. There is no time limit on how long they can go back, however the well known test case in Scotland "Yule Vs South Lanarkshire Council" is not an easy open and shut "the council will win all future cases" sort of case.
  In the "Yule Vs South Lanarkshire Council" case... The old lady was 78 when she signed the house over, had an accident the following year resulting in her breaking her arm. Although at that time a community care assessment was done it was not determined that she needed care at the time. She then went on to develop senile dementia. It was deemed then that she did not develop dementia over night and that it was likely that her health was far from perfect when she signed the house over. Add to the that the fact that power of attorney was granted at the same time the house transfer was made, then the council had a very good case to take to court.
  In my case, my parents are of good health. Not perfect, but nothing that could be considered anywhere near the level of needing care. They are in their 60's also. One is less healthy than the other, however the likelyhood of "both" needing care within the next 10 - 20 years is unlikely based on how fit one of them are. My dad recently completed a 60 mile bike ride. He's fitter than me. They've actually gifted the house for their grandchild, but gifted it to me to ensure their grandchild is mature enough to manage the asset. I will decide if they are or not, and hold off until they are.
  And even if the council deem the gift deliberate, there's the increased allowance in 2016 and the very real reality that they would struggle to prove this in court if we challenge them based on evidence of good health at the time of gift and the gift will have been made 10, 15 maybe even 20 years in advance. So it doesn't look like deliberate deprivation of assets. So notional value or not, they still need to satisfy a judge in court if I decide to challenge them.
  Now I understand that tax payers may not be happy with this (unless they're in a similar predicament) However my beef and my parents beef is that a proportion of either national insurance or tax should be put into a separate fund to fund residential care for the elderly.
  Also my current estate is joint with my wife and I don't anticipate it being more than Ј325k within the next 10 - 20 years. My wife and I are solid, so even I die she would not force the sale of the house. My lawyer said she couldn't anyway as life rent in Scottish law is on the house for both my parents, so they have it until they die.
  What incentive do people have to work hard and pay off a mortgage over 25 years if the local authority is just going to try and take it off them if their health fails?
  I myself pay a joint mortgage on a house worth considerably more than the one my parents have gifted to me. I have a child, and I will do everything possible to pass my house on to my child later in life. I would happily pay a little more tax over my lifetime if it meant protecting my house from being forcefully sold to pay for care home fees.
  At the end of the day, it's not my fault if the government is so useless that it fails to protect the life's work of those who have worked hard all their life to contribute to the success of the country. I don't doubt for a second that if everyone who owned a house knew about this, it would be a big issue for voters!
  In the case of my own house, there are others ways around this...
  (1) Equity release leaving less than Ј118,000 equity in the property with deferred payment on death. Use the proceeds to open up investment bonds with whole of life insurance attached to it. Insurance can't be taken into consideration in means tested care. (go research it)... they can try, but a law protects the investment bond if insurance is attached.
  (2) Downsize our house at retirement, move into a low cost retirement flat and use the proceeds of the sale to open investment bonds.
  (3)If the house is worth enough and can achieve a good rental income, then rent it out to pay the care costs. Supplementing any short fall with pension income.
  (4) Top oneself, as if my quality of life is ever so bad that I need care... for me personally there's more to loose by not being able to pass my assets on to my child than a few years of incontinence whilst sitting in a lounge watching the telly and waiting for my life to end. Simple really haha