Gift with Reservation of Benefit and Deliberate Deprivation of Assets for Care Home Fees?

I have clients, Mr and Mrs X, who own a large house set in 1 acre of land.

Both are elderly and unfortunately Mr X has been unwell recently. Mr and Mrs X decided to let one of their daughters and her family move in to the big house. The daughter and her family sold their home and from the sale proceeds, built a smaller property in the one acre grounds for Mr and Mrs X to live in which would be easier for them to manage. Planning Permission was obtained but it was subject to the two properties remaining as one Land Registry title and that the smaller property only be used by family members of the occupants of the big house.

Mr and Mrs X own the title to the properties but for various reasons, wish to gift the big house to their daughter and her husband whilst Mr and Mrs X remain living in the small property.

I have three questions:

  1. Will this be a Gift With Reservation of Benefit if they effect the transfer without paying a market rent for living in the smaller property? The utility bills cover both properties and Mr and Mrs X pay half.

  2. If either Mr or Mrs X go into permanent residential care and there is no-one living in the smaller property, might the Local Authority consider the gift to be deliberate deprivation of assets on a financial assessment for care home fees?

  3. Any other issues which may be relevant? I have advised on CGT

Hazel Jones

Hazel I have had a similar situation. Its quite a common planning condition. Try a transfer of title to daughter (and son in law if thought fit) subject to a declaration of trust that the smaller house will be held for Mr and Mrs X for their use during their life. There is an element of GROB in this of course but part value will shift.

You have obviously advised that the gift by way of transfer of title would be a disposal for CGT.

There is always a risk of a deliberate deprivation argument later, but outcome depends on how forseeable care needs are.

You don’t mention if its IHT planning that is driving the gift (which might help with the deliberate deprivation point) or something else. Bear in mind they could just allow the daughter and family to live in the big house, without ownership changing hands.

Simon Leney
Cripps LLP