Ease the cost of moving home by house swapping

How might one resolve the following situation? A retired couple are rattling around in the family home – a lovely property, but costing a small fortune to heat and maintain. They would like to downsize to something cheaper and easier to run, especially as the equity released would enable them to offer their children financial help. But they're held back by sentimental attachment to the old place coupled with exhaustion at the thought of house hunting and moving again.

They have several grown-up children, one of which is married with kids. The family is living on a fairly limited budget in a nearby town, in the new-build two- bedroom flat they bought as newlyweds. But with another child on the way, they are rapidly outgrowing their home.

Clearly, there's a mismatch between property allocation and household requirements here. Of course, we need to make some fairly substantial assumptions – that the family members all get along with each other pretty well and that the parents are in good health, for starters – but several solutions might help improve the situation.

One idea beginning to catch on, particularly as parents think increasingly laterally about ways to pass on wealth to their children, is for the parents and the child's family to simply swap homes.

Historically, farmers have often swapped homes as the younger generation takes over the running of the farm and the older generation steps down. Sophie and Jonathan Caygill and their family, for instance, moved from a modern three-bedroom bungalow into the Caygill's family home when Jonathan took over the family's 1,000- acre farm in Rylstone, North Yorkshire.

"Jonathan's parents are now in a warm, well-insulated bungalow down the road, while we have the lovely four-bedroom farmhouse they lived in for 40 years – it works very well for us all," says Sophie Caygill.

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There are several potential practical advantages of a swap. The parents move to a convenient, manageable home with low running costs, and they don't have the wrench of selling the family home. Instead, they have the satisfaction of visiting regularly and seeing it well used by the youngsters. They don't have the hassle of house hunting either.

The young family, meanwhile, have a spacious and comfortable home, perhaps of a size they could otherwise only have dreamed of. "Parents and children alike are often attracted by the prospect of keeping a home that everyone has grown up in within the family. And, of course, everyone knows the pros and cons of the property, so there are unlikely to be any unpleasant surprises," says Amanda Ake, director at Stacks Property Search.

"That said, I would strongly recommend surveys are carried out on both properties prior to any transaction." Moving is potentially much more straightforward than in a conventional completion, because it can be much more flexible, possibly taking place over several days. It may be possible for parents to leave furniture in taking place over several days.

It may be possible for parents to leave furniture in the family home, rather than have to sell it to downsize.

But house swaps need careful planning. They are most likely to succeed when the different generations live near each other, and the move has both financial and lifestyle benefits. "If the two parties are considering a swap purely for financial reasons, or for lifestyle reasons that will involve financial sacrifice, I'd be very wary," says Ake.

What exactly needs to be considered?

House swaps may sidestep the issue of cash payment, but they are a legal trans- action that involves changing ownership on the properties' title deeds. Moreover, every swap is very different, with specific circumstances and considerations.

It therefore makes sense for both parents and children to take legal advice and talk to a financial planner before doing anything.

Shaun Parry-Jones, a private client lawyer with law firm Hart Brown, suggests that a transfer deed is drawn up and each party transfers the property to the other.

If the children still have a mortgage, they'll need to get the agreement of the mortgage company to transfer it to the new home. Alternatively, it may make financial sense to find a new deal at a better rate, but bear exit penalties in mind in your calculations.

"Although no money changes hands, stamp duty land tax will be due on the market value of both properties swapped, because 'consideration' in the form of the property values is changing hands," explains Frank Nash, tax partner at accountancy firm Blick Rothenberg.

Provided both properties have always been used as the main home, there will be no capital gains tax to pay. But Nash warns: "If a home had been previously let, some CGT might be payable."

Well-off parents can enjoy substantial estate planning benefits with a house swap. Say the parents' house is worth £800,000 and the child's £300,000. By swapping homes, the parents are effectively gifting £500,000 of assets to the child's family, in the form of what's known as a potentially exempt transfer (PET).

Under the rules for PETs, if the parents survive at least seven years beyond the swap, the £500,000 falls out of their estate as far as inheritance tax is concerned. If there's concern about their health, it's possible to protect a PET by taking out term assurance to cover the IHT liability in the event of either parent dying within seven years of the swap.

Parry-Jones stresses, however, that even though the exchange feels less formal than the usual sale and purchase of the property, it's important to get the formalities correct so that the gift is properly made. "Problems may arise if it is considered that the party making the gift has retained a benefit in it – for instance, by living in the property or being able to ask for it back," he warns.

Parents need to think about how their circumstances might change – particularly if most of their wealth is tied up in the house. Nash points out that it's not uncommon for couples to divorce around retirement, as they come to terms with an empty nest and a life of leisure.

"Giving away substantial wealth could mean financial difficulties if both parents then go their separate ways," he says.

Nursing home fees

Another consideration is nursing home fees. If the local authority takes the view that a swap has been done by parents to "deliberately deprive themselves of assets' so that there is less to take into account when contributions to care home fees are means tested, there could be an issue.

"This is very much about the local authority's interpretation of your intentions, so it's a bad idea to swap if the possibility of a care home for a parent is already on the horizon and it's advisable to ensure you have a paper-trail of correspondence making clear the reasoning behind the swap," says Parry-Jones.

Parents need to revisit their wills in the aftermath of a house swap, particularly if there are other children in the family. "One big question for parents is how to compensate other children to avoid accusations of unfairness or favouritism," Parry-Jones adds.

House swaps will only work for some, and it's vital that both sides feel the benefit and understand the tax implications.

Dos and Don'ts


  • Take professional advice
  • Try a trial house swap to see how it feels
  • Talk to any other siblings in the family and get agreement – good communication is vital to avoid bad feelings
  • Review parental wills to ensure they remain fair to the other children
  • Consider taking out a term assurance policy to protect a PET against IHT if the parents do not survive seven years


  • Embark on a swap unless the new arrangement will suit everyone's requirements
  • Take shortcuts – pay for surveys, get professional valuations, ensure clarity as to who owns what and who is responsible for what
  • Be precious about what the other party does to your old home – remember, it's theirs now

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