Gifting property to your children can be a great way to pass money onto loved ones and ensure they are provided for in the future. The process can come with the added benefit of reducing inheritance tax (IHT) implications or protecting the property from a sale at a later date to fund care home fees.
However, gifting property to children needs to be carefully structured as the rules are complex and the benefits won’t automatically arise from giving away your assets.
What Should You Consider When Gifting Property To Children?
Inheritance Tax
The gifted property will only be exempt from IHT if the gift is made 7 years before you die. However, there are exceptions to this rule and HMRC won’t recognise the property as a true gift in some circumstances and will include it in your estate for IHT purposes.
Gifts With Reservation Of Benefit
To be considered a true gift, there needs to be no benefit from making the gift. If there are benefits, then HMRC will view the gift as a GROB (gift with reservation of benefit) and make it part of your estate for IHT calculations.
A key example of a GROB is when parents gift their home to their children but continue to live in the property. Transferring the legal ownership isn’t sufficient if the parents still benefit from the property by living there – it is not considered a true gift.
To be a true gift, the property needs to be transferred legally to the children and either vacated by the parents or the parents agree to pay the market rent.
Capital Gains Tax
If the property is the main home, there should be no capital gains tax to pay, but there will be CGT payable if the property is a second home or a rental property.
Stamp Duty Land Tax
If the gift is a true one, there will be no stamp duty land tax as no money would have changed hands. However, stamp duty is payable if there is a mortgage on the property or a price was paid for the property.
Care Home Fees
By gifting property to your children, you can ensure that it is not included in your estate as part of the assessment for care home fees. However, this is a complex area of law as the gift can be scrutinised by the local authority and still included in their assessment for care home fees, and needs to be handled carefully.
No Guarantees
You no longer own the property and might not have anywhere to live if your children decide you can’t stay in the property or to sell the property.
Bankruptcy
If your children are declared bankrupt after you gifted the property, you might lose the ability to live in the property as it could be sold as a result of the bankruptcy.
Divorce
If one of your children goes through divorce proceedings after you gifted the property, the property becomes an asset in the divorce settlement, and you might not be able to continue living in the property. You may also lose the ability to keep the house within the family depending on the outcome of the divorce proceedings.
Legally Binding
Unlike a Will which can be changed and updated according to your circumstances, a gift is binding, and you can’t reverse any gifts that you make.
Early Death
If your children die before you do, the gifted property becomes part of their estate and will pass according to their Will or the rules of intestacy. The property could pass to someone you don’t wish to benefit.
How We Can Help You With Gifting Property To Your Children
Our specialist Wills, probate and trusts solicitors have the expert knowledge and extensive experience of helping clients structure property gifts in the most effective way possible – one that results in the best possible benefits for their individual circumstances.
Estate planning is complex and we will help you to plan for your future, including gifting property to your children in the right way for your situation. By ensuring that you consider every aspect and implication of gifting property, you will be able to choose the best option for you and your loved ones when it comes to passing wealth on to loved ones.
To speak to us about gifting property to your children or any aspect of estate planning, please contact us on 01244 311 633 or email advice@bartletts.co.uk or complete a Free Online Enquiry and we will soon be in touch.
