A Gift with Reservation of Benefit or GROB is a trap that many families have fallen into or are in danger of falling into due to poor advice that’s often come from “a friend in the pub” or “someone I was chatting to in the coffee shop”.
These people think that if a parent gifts some or all of the family home to their children whilst they are still alive then it will be outside their estate and so cannot be taken to pay for the cost of care in later life or by any other creditor for any other reason.
Unfortunately, unless the parents are paying the full market rent for the element of the property that they do not own, and the children are declaring that rent for Income Tax purposes, then the gift is classed as a GROB. Meaning that the Government or Local Authority do not consider the gift to have occurred at all, the parents have gifted the property but are reserving the right to live in it.
Sometimes people in this situation have mentioned to me the “seven year rule” which they think applies, it doesn’t! The seven year rule refers to Potentially Exempt Transfers in relation to Inheritance Tax. Nothing to do with protection of assets.
This can also present another problem for the children as well, once transferred, unless the children live in the same home, it becomes a second home for them, from the date of the original transfer the clock starts ticking for Capital Gains Tax and so this tax amount is likely to grow more than it would if they had inherited the property through their parent’s wills.
The best way for parents to protect the family home, usually their largest asset, and avoid their actions from being considered a Gift with Reservation is to change the Land Registry title from Joint owners to Tenants in Common and include in their wills some sort of asset protection trust, often a Protective Property Trust unless the family have numerous other assets.