We are retired and have decided to pool resources with our daughter. We will sell our two homes and buy one property, with a separate annex, and live together.
If we gift the proceeds of the sale of our house to our daughter, who will be paying the mortgage on the new property, and we don’t have our names on the deeds of the new house (and survive more than seven years after the gift), will this be classed as a gift with reservation? Would we be better to have our names on the deeds and be entitled to the residence nil-rate band (RNRB) on death?
The £300,000 approximately that we give will be about 40 per cent of the value of a new property. So my husband and I would presumably own 40 per cent of the property jointly if our names were on the deeds. If one of us had to go into care later in life would this mean 20 per cent of the value of the property could be taken into account?
Carly Drummond, a tax manager at MHA MacIntyre Hudson, says this is a common area for discussion among families in your position.
The proposal would not, on the face of it, be a gift with reservation of benefit (GWRB), as usually transactions involving cash would instead be caught under the pre-owned assets tax (POAT) which is payable to HM Revenue & Customs on estates throughout the UK.
POAT imposes an annual income tax charge. The charge will, in broad terms, be applied on a value equal to the market rent that you would have to pay to occupy the property. However, should you fall under POAT, you can elect to fall within the GWRB rules, and we would recommend this — unless you wish to pay the POAT, or a rent for occupying your share of the property.
If you fall within the GWRB rules, you can still qualify for the residence nil-rate band assuming the gift is made to your daughter. Therefore, on the basis your joint estates are under £1m at the date of death, there may still be no IHT arising.
Further, the asset would not be within your ownership and assuming care does not become an issue for some time — and the transfer was not made in anticipation of care being required — it seems unlikely that the council would be able to take a charge on the property.
An alternative plan would see you either take ownership of a proportionate share of the total property, say 40 per cent or the annex, and this could be carved out so you can take ownership of that (just the two of you). If the annex was worth less than £300,000, the difference between the value and the cash gifted would be a potentially exempt transfer (PET) with no strings attached. This means it falls out of account for IHT provided you survive seven years.
In terms of care fees in respect of the above, I understand that councils cannot force a sale of jointly owned property, but the value of a share of jointly owned property will be taken into account in the means test for assessing fees.
However, the local authority should base its valuation on the value of the joint ownership share in the current circumstances, which on the open market might be very low or even nil, suggesting that in this case, joint ownership of the whole property may be the best option.
One further point to mention would be in respect of stamp duty land tax if the property is in England or Northern Ireland. You should confirm whether the annex with the new house will qualify as a “subsidiary dwelling” so that you may avoid paying the additional 3 per cent supplementary charge on additional homes.
Should I move my savings to this new digital bank?
I saw that the US bank JPMorgan Chase had opened up a digital consumer bank in the UK and there’s a lot of talk about its savings rates but the differences with rivals seem quite marginal to me. How do I decide whether it’s worth moving my money?
Justin Modray, director at Candid Financial Advice, says Chase Bank is a household name in the US and will be hoping to emulate that success with the launch of its digital current account here in the UK.
The two headline features are 1 per cent cashback on purchases and 5 per cent interest on “round-up” savings. While these sound attractive, a quick look beneath the surface dims their appeal unless you are a prolific spender.
The cashback applies to debit card purchases excluding big-ticket items such as cars, art, antiques, gambling, insurance, professional fees and tax payments. It’s a nice feature but unfortunately ends after you’ve held the account for a year, limiting the overall benefit.
Even if you manage to make £12,000 of qualifying purchases via debit card over the first year, the resulting £120 cashback is broadly on par with current account switch incentives offered by several other banks. Chase also says it can change the cashback terms during the year, so it’s not set in stone.
The round-up savings feature pays 5 per cent annual interest on monies where you choose to round up your spending to the nearest £1. In practice the balance is unlikely to exceed a few hundred pounds a year and you need to transfer it elsewhere annually, so the annual interest will probably be a few tens of pounds at most.
A neat feature we’ll likely see a lot more of is a numberless debit card, with your details accessed via an app. It’s a simple anti-fraud measure and positive step in the right direction. And overseas spending on the debit card is fee-free, a potentially valuable feature if you don’t already have such a card.
Surprisingly the account does not yet allow direct debits, a current account stalwart. Chase says it is working on this but cannot yet confirm when they’ll be available. Overdrafts are the other notable omission. When your account hits zero the debit card will stop working.
If the lack of direct debits and overdraft facility does not deter you, then the account is certainly worth consideration. It’s a solid offering but don’t be seduced by the cashback and round up interest. Unless you are a big spender their value is limited, especially since the cashback stops after the first year.
It’s always nice to see increased competition in the banking sector and Chase will no doubt win some UK customers, but whether the account has sufficient appeal to become mainstream remains to be seen.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Our next question
We recently bought the property next door. The houses are not attached but were once part of a country estate and there are no physical barriers between them. We also share a driveway.
We’re in the process of renovating the new purchase, after which we intend to use it for friends and family, or perhaps very short lets. We are retired. Does it make sense to combine the two properties into one title and, if we did so, would it be easy in future to separate them again?
One advantage would be not having to pay two sets of council tax and as a single property perhaps we would also benefit from the capital gains tax allowance for our main home. Could the council object?
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