Gift of property

I have clients who own their own home and built another property on adjacent land within the curtilage. None of it is registered but all free of mortgage.

Their only son and his wife have lived in the additional property for some years. Clients seem to have the belief (not from me) that if they require care the additional property would not be taken into account. I do not feel this can be right as they are not living in it?

After our discussions they are now concerned their son may be at risk if the property has to be sold. They now want to divide the plot and gift him the property in which he is living. I feel there would need to be retrospective valuation for CGT and it would be a PET? Am I missing anything, is there a better way of dealing with it?

Many thanks

Kathy Melkerts

One issue is wether the “dwelling” of the parents includes the property on the adjacent land occupied by the children. There is a host of cases on this issue but for my money I doubt that the children’s property would form a dwelling of the parents (eg Lewis v `Rook [1992]). If correct, then a gift of the children’s property (plus some of the surrounding land) would constitute a partial disposal for CGT and any gain arising thereon subject to a CGT charge (no main residence relief applying).

Appropriate valuations would need to be carried out.

The gift would be a PET for IHT.

Prior to any gift if one of the parents finds themselves in a care home.

For care home fees assessment I don’t understand why, on the death of the first, parent that 50% of the value of the overall property and land does not form part of their capital (irrespective of the fact that children live in the other property).

Any gift by the parents to the children of the property in which they live (the children acquiring legal and beneficial title) may, depending upon all the facts, constitute deprivation of capital.

If, for whatever reason, both properties did constitute a dwelling for the parents and the surrounding area was for their appropriate enjoyment then main residence relief would be in point on the gift to the children.

Malcolm Finney