Gifting your property – is this a good idea?

Sponsored feature | Samantha Houlden, partner, HCR Hewitsons

You have many reasons for deciding to gift your home to your children or other family members. However, you should think carefully about the associated costs and other relevant factors before you go ahead, to ensure there are no nasty surprises later.

This decision can secure the recipient’s financial future and reduce your tax liability too.

You can legally give your property to your children or other family members, even if you want to keep living there, but that will make a difference to your legal and financial position.

If you were to make an outright gift to your child to reduce the value of your estate, it would be treated as a ‘potentially exempt transfer’ for the purposes of inheritance tax (IHT). If you were to die within seven years of the date of making the gift, then the property would fall back into your estate for IHT purposes and would be deemed to be ‘chargeable consideration’.

But if you survived for seven years after the date of making the gift, there would be no IHT liability. By making the gift you also give up the right to receive any rental income from the property or any share in the proceeds of sale when it is sold.

If you gift your house but remain living there, this is treated as a ‘gift with reservation of benefit’. In this scenario the property will remain part of your estate on your death for IHT purposes, leaving your children or family members potentially liable to a charge to IHT. To avoid this, you could pay them a full market rent; they would then pay income tax on that income.

Once you have gifted your home, you no longer legally own it, so you have no control over what is done with it. If you were still living there and had a disagreement with the new legal owner, you could be evicted. If the person to whom you had given the house got divorced, they might have to sell the home and share the proceeds of the sale as part of their financial settlement.

Alternatively, you might consider, with professional advice, selling the house, buying a smaller one and giving the net proceeds to your children; you would still need to survive for seven years for there to be no IHT liability. Or you could give a share of the home to family members (so that you jointly co-own the property) and live in the property together.

You should also consider other issues such as capital gains tax, and ensure that, if care homes fees are an issue, the local authority won’t see the gift as an attempt to reduce your assets to avoid paying those fees.

Contact Samantha Houlden on 01223 581445 or shoulden@hcrlaw.com.

Visit hcrlaw.com.

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