While it is possible to gift your home to your children, there are numerous implications. It is important to understand the effect the gift could have on your rights, the financial position of both you and your children, and what tax or other liabilities could arise. Additionally, it is not legally possible to give away a property to reduce your liability for future care home costs.
Gifting a home to your children can be a good way to pass on some of your assets during your lifetime. It can offer them financial assistance, and give you the opportunity to see them enjoy your gift.
However, because of the wide-ranging effects of gifting property, you should take independent legal advice before you go ahead.
Do you avoid Inheritance Tax if you give your house to your children?
If you survive for a further seven years after you give away an asset, then your estate will not be charged Inheritance Tax (IHT) on the value of the asset. Should you die before seven years have elapsed, IHT is payable on the value of the asset on a sliding scale, as follows:
| Years between gift and death | Rate of tax on the gift |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 or more | 0% |
The usual rate of IHT is 40%.
Your estate will benefit from an initial tax relief of £325,000, meaning the tax is only payable on the value of the estate above this threshold. Other reliefs may be available, including relief not used by your spouse’s estate, and property relief of £175,000 for both you and your spouse if you leave a property to your direct descendants, usually children or grandchildren. You could therefore have a relief of up to £1 million.
To ensure that you are handling your IHT situation in the most effective way possible, you are strongly advised to speak to a legal expert before taking action. Your solicitor will also be able to draw up the necessary paperwork to transfer the legal title, if this is the best option for your circumstances.
Can you avoid paying care home fees if you give your property away?
You cannot give your property away to avoid paying future care home fees. This is known as deliberate deprivation of assets, and local authorities have the power to set aside transfers carried out to avoid care home fees. There is no time limit on this, and the power extends to other assets as well as property.
Can you stay living in your home after you give it to your children?
If you remain in the property after gifting it to another party, this is known as a ‘gift with reservation of benefit,’ or GROB. If you retain any benefit in the property, then your estate will still be required to pay IHT on the value of the property, as if it had not been gifted.
You should also be aware that once you have gifted the property, you no longer have any say over what happens to it, and you could be required to leave at any point. This includes if you were to fall out with your child, or if they were made bankrupt or went through a divorce.
Does Capital Gains Tax apply if you give a house to your children?
Capital Gains Tax (CGT) is not payable on the sale or transfer of your main home. However, for all other property, it is. This means that if you give your children your second property or holiday home, you will need to pay CGT on any increase in value.
Implications for those receiving the gift
There may also be implications for the individual receiving the property. These include:
- The risk of losing all or part of the property if they go through a divorce or bankruptcy
- The risk of losing benefits if they receive a home or other valuable asset
- Increased Stamp Duty and higher mortgage rates if they decide to buy another property, as this would then be classed as a second home
Contact Us:
If you would like to speak to one of our expert estate planners, ring us on 01634 353 658 or email us at rob@pembrokewillwriters.com