Gifting Property to Your Children: Understanding the Implications

Transferring ownership of your home to your children might seem like a straightforward strategy to reduce your estate’s value for Inheritance Tax (IHT) purposes. However, this decision carries significant legal, financial, and personal considerations that must be carefully evaluated.

Inheritance Tax Considerations

In the UK, IHT is levied at 40% on estates exceeding the £325,000 threshold. Gifting your property can potentially lower your estate’s value, thereby reducing the IHT liability. However, for the gift to be effective:

• Seven-Year Rule: You must survive for seven years after making the gift; otherwise, the property’s value may still be subject to IHT. ​The Telegraph

We also wrote an article on this: link to JWALS article.

• Gifts with Reservation of Benefit: If you continue to live in the property without paying full market rent, HMRC may view this as retaining a benefit, rendering the gift ineffective for IHT purposes. ​

Capital Gains Tax Implications

Transferring property can trigger Capital Gains Tax (CGT):

• Primary Residence: If the property has been your main residence, Private Residence Relief may exempt you from CGT.​ The Telegraph
  

• Second Properties: Gifting a second home or rental property could incur CGT on any increase in value since its purchase. ​

Loss of Control and Security

Once the property is gifted:

• Legal Ownership: Your children become the legal owners, and you relinquish control over the property.​

• Financial Stability: If your children encounter financial difficulties, such as bankruptcy or divorce, the property could be at risk.​

Real-Life Cautionary Tale

Consider the case of an 82-year-old grandmother who transferred her £1.4 million home to her daughter. Following a dispute, she was evicted and left homeless. This underscores the potential personal risks of such arrangements.

Alternative Strategies

Before deciding to gift your property outright, explore other estate planning options:

• Trusts: Placing the property in a trust can offer more control over its future use and protect against certain risks. ​Financial Times
  

• Life Interest: Granting your children a future interest in the property while retaining the right to live there can balance control and tax efficiency.​

Thoughts from the team at Just Wills and Legal Services

Gifting your property to your children involves complex tax implications and potential personal risks. It’s crucial to consult with estate planning professionals to fully understand the consequences and explore all available options. At Just Wills and Legal Services, we specialise in providing tailored advice to help you make informed decisions that protect your assets and your family’s future.

Contact Us

For personalised guidance on estate planning:

• Phone: 01342 477102

• Email: [email protected]

• Website: www.justwillsandlegalservices.co.uk