Transferring ownership of your house (your questions answered)

Selling a house is not the only way to transfer a house.

This conveyancing-related area of the website looks at commonly-asked questions around the issue of voluntary transfers or gifts of property to others.

Where individual words or phrases appear in bold in the text, you’ll find a definition of the word or term in the glossary at the end.

Why would you want to transfer ownership of your house?

There are many reasons why a person might consider transferring their house to another person, often to family. 

You might do it in order to make the process after your death more straightforward. Or you might do it for tax planning purposes.

There could be several potential consequences. You need to consider these before you make a decision.

What are the benefits of owning the house you live in?

An advantage of title remaining in your own name is that you keep total control of your home and financial position.

Your house is not only a home. It is also an asset which can be used for funding purposes.

What are the risks of transferring ownership of your home?

The main disadvantage of transferring your house is that you will no longer be the owner of it.

There is a risk that the new owner will not allow you to remain in the house.

They may not continue to be the owner. They would be free to sell the house.

Or they may have no option but to sell their share of the house:

• They be declared bankrupt in which case their trustee may sell off the house to help pay their debts.
  
• If they die before you, their Executor will need to ingather assets including the house.

How can you make sure you can continue to live in your home if you do transfer ownership of it?

There are two main ways of ensuring that you can remain living in a house if you transfer ownership of it:

• Have the title include a Liferent interest in your favour.
  
• Put a Lease in place.

Where you protect your right to keep living in the house using a Liferent it is a good idea to have a suitably-worded Power of Attorney in place too.

This is necessary to give your Attorney the power to terminate the Liferent.

When might termination of the Liferent be required?

It could be important to be able to terminate the Liferent if you have to leave the house for health reasons and do not have the mental capacity to take the decision or sign a suitable document to terminate the Liferent. 

Otherwise, in a situation where you had become legally incapacitated, the house could not be sold and if it were to be rented the rental income would be due to you (and due to be used to help pay your care costs).

Any Lease would probably be a Private Residential Tenancy and rent would be payable by you.

There are many regulations before a house can be leased and the owner would be liable for income tax on the rental income. It would be possible for your landlord to terminate the Lease in certain circumstances, including non-payment of rent.

Are there circumstances where you cannot transfer your house?

Yes, there are. Here are a couple of examples:

• If you have a Mortgage, including an Equity Release Mortgage, you cannot transfer the house without repaying the amount outstanding.  If you have an Equity Release Mortgage there could be a penalty if you repay.

• If you are joint owner and the title includes a Survivorship Clause, the consent of the other owner(s) would be needed.

Does your house have to be sold if you go into care?

The rules are not straightforward, but essentially the answer is ‘no’.

Here are some examples.

• If you are a married couple and one of you requires residential care while the other continues to live in the house, the property is not taken into consideration when the Local Authority is assessing whether any contribution is due by you for care charges. 

• If you are not a married couple – or neither of you live in the house – and you need residential care, if you continue to own the house the Local Authority will take the house into consideration when assessing whether or not any contribution is due by you towards care charges.

• If someone does not have sufficient funds in their Bank account to meet the payments of the assessed charges the only realistic option for them may be to sell their house. 

Can you find a care funding option other than selling your house?

For example, is it possible to let the house? The rent may cover all or part of the care costs.  It may be possible to make a payment arrangement with the Local Authority to defer payments.

If you fail to make the payments, the Local Authority can put a Charging Order on the house, which means that it cannot be sold unless the payments are made up to date.

There is a suggestion that a Charging Order has the same effect as a Mortgage so that, if payment is demanded, the house can be repossessed and sold. However, the law is not clear on this point.

What if you continue to stay in your house – is there a time limit in relation to care charges?

If you have care needs in the future and the Local Authority requests a financial contribution, they will assess your income and assets and also look at your circumstances.

The value of a person’s home is not included where their spouse or civil partner still lives in it. But the Local Authority can investigate the circumstances as to why, for example, a person is living in a house that belongs to someone else without rent being paid.

If they decide that you have ‘given away’ the house to avoid liability for care costs (sometimes known as ‘deprivation of assets’) the Local Authority could make the assessment as if the house was still owned by you.

There is no time limit on how far back the Local Authority can look in order to check this out.

It is important therefore that you clearly document the true purpose of the transfer at the time it is made.

You need to make it clear that ‘trying to avoid care costs’ was not a factor in your decision to transfer.

You must think about documenting the facts at the time of the transfer because, by the time the Local Authority decides to assess the position relative to cost of care, you may no longer have legal capacity to answer the relevant questions personally.

The “7-year rule” you may have heard about is only in connection with Inheritance Tax and what are known as Potentially-Exempt Transfers. This brings us neatly to the next question.

What possible tax implications are there for you?

There could be an impact for Inheritance Tax purposes.

The general rule is that when an asset is gifted (whether cash or cash equivalent) and you die within 7 years, the value or proportion of that gift is included in the calculation of your assets when determining whether any Inheritance Tax is payable.

After 7 years, the value is not included in the calculation. The Potentially-Exempt Transfer becomes exempt.

There are traps here for the unwary.

If somebody has ‘gifted’ an asset but retains the right to use it (for example, gifting a house and continuing to live in it without paying full market rent), the full value of the house is included in the Inheritance Tax calculation.

This is deemed to be a ‘gift with reservation’ (i.e. with reservation of benefit).

Therefore, if you transfer ownership and continue to live in the house – with or without a Liferent interest – the value of the house at the time of your death would be included in calculating whether Inheritance Tax is due.

Transferring the house would be treated as a gift for tax purposes.

As your main home, there would be no Capital Gains Tax implications for you when transferring the house. 

The general rules for transfer of houses are that:

• transfers between a husband and wife – or between civil partners – are exempt, and
• the transfer or sale of a person’s principal home is exempt.

What are the implications for the person you’re thinking about transferring the house to?

In the future, when the new owner transfers or sells the house, it is possible that they would not be entitled to the Capital Gains Tax exemption given to a person’s main residence.

If, however, you lived in the house until the date of your death and it was then sold, it would be revalued at that date for Capital Gains Tax purposes, but as it was your main home, would still be exempt from Capital Gains Tax.

If the person(s) you intend to transfer the house to does not already own a house and you transfer your house to them and they then decide to buy a house, they could find that they have to pay additional Land and Building Transaction Tax (Stamp Duty).

If they owned your house but you were not living in it, they may have to pay double Council Tax.

Practical points to consider if you decide to go ahead.

So you’ve decided to transfer the ownership away from you. What should you consider?

• You should check with your insurers whether or not the insurance should be in your name or the name of the owner.

• Although you will continue to be responsible for Council Tax, that office should still be advised of the change of ownership. If you are not living in the house you will not be responsible for Council Tax and the owner may be responsible.  If you need to move out of your home and the house is not being marketed, the Local Authority has power to charge twice the normal rate for an empty property.

• You should also check with the electricity and other service providers whether or not they need to be notified of the change of ownership.

What are the first steps if you decide to go ahead with the transfer?

If your house is not already registered on the map-based land registration system, the first step is for a Plans Report to be obtained. This ensures that the title deed plan is suitable and that the boundaries coincide with the Ordnance Survey Map boundaries. If there is a discrepancy, it might be that a new plan is needed.

(If your house is already on the map-based land registration system, there will be a single title deed document rather than a bundle of documents).

If the title plan is in order – or if your house is already on the map-based Land Register system – the next stage is for a deed to be prepared for you to sign, in order to transfer title of the house.  The person(s) you are transferring to will need to be happy to take title. If you have chosen to have a Liferent inserted, they will need to understand the implications of that.  

You will also be asked to sign a declaration that the gift is not being made to avoid creditors and that by transferring the house you have not made yourself insolvent.

What happens if you have not transferred ownership by the time you die?

It depend on your circumstances and how the title to your house is worded.

If you are a couple and your title contains a Survivorship Clause, when one of you dies the title makes provision that that half share of the house transfers to the survivor automatically. In other words, the survivor becomes the sole owner. That is what happens no matter what is in the Will of the person who has died.

If you are not married, or your title does not contain a Survivorship Clause, or you are now the sole survivor, on your death Confirmation will be needed.

If the title does not have a Survivorship Clause, Confirmation would be required before the title to the half share could be transferred. Depending on the nature and amount of the other assets you have at the time of your death, it may be prudent to delay obtaining Confirmation until the survivor of you dies and deal with both shares at that time.

Most Banks have a simplified procedure for closing Bank accounts after a person’s death if their total assets are under around £20,000 to £30,000. It depends on the Bank’s definition of what they class as a ‘small estate’.  

If you own a house at the time of your death, the simplified procedure cannot be used.  

Therefore, depending on the nature of your other assets, if you do transfer the house prior to your death, it may be possible to deal with your assets after your death using a simplified procedure.  

If your other assets are greater than the small estate limit – or if you have other investments such as stocks or shares – it is likely that the simplified procedure would not be available.

What about Inheritance Tax?

It can be complicated.

Possible consequences depend on things like whether you are married, your circumstances, and what you want to happen to your estate after your death. 

There are many regulations regarding Inheritance Tax.

The current law on Inheritance Tax provides that anything which is left to a surviving spouse is exempt (‘Spousal Exemption’).

If on the first death the personal allowance of £325,000 (or part of it) has not been used because of Spousal Exemption then, on the second death, that unused allowance can be transferred to the surviving spouse, potentially doubling the allowance to £650,000.   On the death of the first spouse – if assets have been left to somebody else other than the spouse or where there has been a chargeable lifetime gift – that part of the personal allowance cannot be transferred over. 

Example

If Mr and Mrs G each have assets of £300,000, their combined assets are worth £600,000. If Mr G dies leaving all his assets to Mrs G there is no Inheritance Tax as this is an exempt transfer (a transfer between spouses).   

On Mrs G’s death, Mrs G’s allowance of £325,000 is available and also her husband’s allowance of £325,000, giving a total allowance of £650,000.  This would mean that there would be no tax payable on her assets (which total £600,000).

If, shortly before Mr G’s death, he had gifted assets to the value of £65,000 to someone other than his wife but still had £300,000 of assets on his death which he left to his wife, there would be no Inheritance Tax on his death but he would have used up £65,000 worth of his personal allowance.   

Only the unused part of the allowance (i.e. £325,000 – £65,000 = £260,000), could be transferred to Mrs G on her death.  

On Mrs G’s death, her assets are £600,000. This is her original £300,000 plus £300,000 which she had received from her husband.

In this second scenario, the available personal allowance would be her own £325,000 and her husband’s unused allowance of £260,000, totalling £585,000.  Her assets (£600,000) would be £15,000 more than the allowance and tax would be payable on £15,000 at 40%.

Residence Nil Rate Band

There is an additional allowance called the Residence Nil Rate Band, where the family home is left to direct descendants.

The additional allowance was brought in from April 2018 at £120,000 to be increased to £175,000 by 2021.

This Residence Nil Rate Band also applies to properties which have been gifted to direct descendants during lifetime, as long as you retain a right to use the property up until your death. 

If, however, you had to terminate the Liferent or give up the Lease before your death and moved out of the house, the additional allowance could not be claimed. 

As with personal allowances, any proportion of the Residence Nil Rate Band not used on first death because of Spousal Exemption can be transferred on the death of the second spouse, doubling the amount of the additional allowance.

What is the meaning of the highlighted words and terms? – Glossary

Attorney This is the person to whom you have given the power to sign documents on your behalf and take decisions for you if you require that help.

Capital Gains Tax This is a tax which could be charged when an asset is sold or transferred. The sale or transfer of a person’s principal residence is usually exempt from this tax.

Charging Order This is a type of security that a Local Authority can register against the title of a house to ensure that payments which are due (often in connection with care charges) are paid before a property can be sold or transferred.

Confirmation This is the procedure (similar to Probate in England) where your Executors, usually with the assistance of solicitors, make a full list of all of your assets and their value at the time of your death and submit this information along with your Will (if you have one) to the local Sheriff Court. The Court produce a document called Confirmation and this is the authority for the Executors to uplift funds, close accounts and sell assets.  As part of the procedure, any Inheritance Tax payable is dealt with before application is made to the Court.  If you do not have a Will at the time of your death, an Executor (usually a family member) must also be appointed.

Equity Release Mortgage This is a type of loan available to older people to release equity from their house. The interest is rolled over and is not payable until the loan is repaid.

Executor  If you have a Will, this is a person you have named who you want to make sure that your assets are dealt with according to your wishes after your death. If you do not have a Will, certainpeople – usually close family members – can ask to be appointed your Executor.

Inheritance Tax This is a tax which might be payable on the value of a person’s assets after their death. Actions, including gifts and transfers, taken by the person during their lifetime may affect the calculation.

Liferent   A Liferent interest is a condition in the title of the house specifying that you have the right to live in and use the house until that right is discharged or until your death.  This right will apply no matter who the owner is and would safeguard you against a transfer of property or the owner dying or becoming bankrupt. The Liferent interest implicitly includes the obligation (on you) to take responsibility for Council Tax, services (such as electricity) and maintenance of the house.

Mortgage You may have a loan over your house. This will be registered on the title of your house.

Power of Attorney This is a formal written authorisation by you giving someone else the power to make decisions, sign documents and take actions on your behalf.

Survivorship Clause This is wording that can be in the title of a property if there is more than one owner. It specifies that, on the death of one of the owners, their share of the property automaticallytransfers to the survivor.

How we can help

For further information and an initial chat about any of the issues covered on this page, contact one of the conveyancing team at Grigor & Young on 01343 544077.  All enquiries are free of charge and without obligation.  Alternatively, email us at  mail@grigor-young.co.uk.

For Properties in Forres, call 01309 672126 or email forres@grigor-young.co.uk.

You can also send us a Free Online Enquiry.

DISCLAIMER: The information on this page is provided as a guide only. It is not legal advice. Each case is unique and different. You must obtain independent legal advice on what is in your best interests in your particular circumstances.