Can it be a mistake to transfer the family home to your children?

The incentive of avoiding inheritance tax or the persuasion of adult children sometimes leads older home owners to transfer their property to adult children.  If they move out of the property and live for a further seven years, then they have successfully provided their children with a tax free inheritance.  However, if they remain living in the property the tax benefit will not be realised unless they pay the market rent.

Further complications can arise years later if the parent was unclear about what they were doing when the transfer took place.  The transfer will be rescinded by the court if it is later shown that the person did not have sufficient mental capacity at the date of the transfer.   The level of mental capacity required to make a gift depends on the value of the gift.  In the case of a person’s home the level of mental capacity requirement is high.

Alternatively, if the parent had sufficient mental capacity but did not understand the effect of the transfer the court will rescind the transfer.   The High Court ruled recently, in the case of Clarke v Allen [2019] EWHC 1193, that the father’s transfer of his property into the joint names of his two daughters was a mistake.  He had been advised by his solicitors that his daughters would not be able to evict his wife who remained living in the property.  But, in fact, his daughters were able to do so as the legal owners and in fact they attempted to do so with the assistance of the same solicitors.  The High Court reversed the transfer so that the property was returned to the father’s estate and was put to the widow’s benefit as a result of her claim under the Inheritance (Provision for Family and Dependents) Act 1975.

I find that the Transfer of the Property was directly caused by a sufficiently serious mistake so as to mean it would be
unconscionable for the Daughters to remain the owners of the Property.