With inheritance tax charged at a hefty 40%, many people wonder if they can gift their biggest asset to their children before they die.
But there are a number of things you need to bear in mind if you're thinking of giving your home to your offspring.
Is it a good idea to put your house in your children’s name?
As with most things in life, there are pros and cons to putting your house in your children’s name.
On the plus side, it could help them avoid having to pay a significant inheritance tax bill when you die.
But signing over your home to your children can create a number of complications.
You will no longer own the property and could be forced out of it if you fall out with your children.
Even if you’re confident this wouldn’t happen, they could still lose the property if they were declared bankrupt or got divorced.
Giving your home to your children also means you would not be able to sell it if you needed to raise money, such as to pay for care when you’re older.
Finally, if you do go into residential care, your local authority may still include the value of your home when calculating the fees you have to pay.
This is because they may think you have given it away to reduce the level of fees you have to pay yourself.
It’s also important to remember that once you have put your house in your children’s name, you have no legal right to reverse that decision.
Find out how to avoid inheritance tax.
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Get the ball rolling with an in-person valuation of your home. It’s free and there’s no obligation to sell if you change your mind.
Can I gift my house to my children?
Yes you can. It is called a deed of gift. But there are a few boxes you must be able to tick in order to do it.
You must be of sound mind and not acting under pressure.
You must be listed as the owner with the Land Registry and there cannot be an outstanding mortgage on the property
Finally, you must take independent legal advice
But if you want to avoid paying tax, it's not as simple as just putting your home in someone else’s name.
In fact, you cannot continue to live there or even stay there for holidays for free.
If you continue to benefit from the property in any way, it is known as a gift with reservation of benefit.
As a result, inheritance tax will still need to be paid on the property when you die.
The only way around this rule is if you pay rent on the property at the market rate or the new owner also lives there.
You will also need to pay your share of the bills.
In addition, you will need to meet the seven-year rule, which we’ll explain in a bit.
Can I sell my house to my children for £1?
Yes you can and it's entirely legal to do so.
But there are other fees and potential tax implications involved, and you will need to go through the formal selling process in order to do it.
That means hiring a conveyancing solicitor to conduct all of the searches on the property and to ensure that the home is legally transacted.
Other financial implications include:
If you die within seven years of the sale, your children could still be liable for paying inheritance tax. The inheritance tax threshold for passing property to children currently stands at £500,000. Find out more about in inheritance tax in our guide.
If the home isn't your main residence, you may need to pay Capital Gains Tax at the point of sale. Find out more about Capital Gains Tax in our guide.
If there's a mortgage on the property, this will need to be paid before the home is sold.
Stamp duty may need to be paid on the property if there's still a mortgage on it. First-time buyers don't currently pay any stamp duty on the first £425,000 of a property, though this is due to change to £250,000 on April 1, 2025.
It's well worth speaking with a tax property specialist to ensure you take everything into account before deciding to sell to your children.
Can I give my house to my children without paying taxes?
The answer to this question depends on how much longer you are going to live, which of course, nobody knows.
The reason for this is the so-called seven-year rule.
No inheritance tax is paid on any assets you give away during your life, as long as you live for at least seven years afterwards.
If you die within this seven-year period, inheritance tax will be paid on a sliding scale, with the full 40% charged if you die within the first three years.
It then falls to 32% if you die after four years, dropping to 24% after four to five years, 16% after five to six years and 8% after six to seven years.
Are there any other taxes I need to think about?
Unfortunately, even if you avoid inheritance tax, giving your house to your children may lead to them incurring other taxes.
If the property you’re giving away is a second home or holiday home, you may need to pay capital gains tax.
This is charged on any increase in the property’s value between when you first bought it and when you transfer the ownership.
Although the first £12,300 of capital gains is tax free.
Capital gains tax is charged at a rate of 18% or 28% on residential property, depending on whether you are a basic rate or higher rate taxpayer.
If your children rent out the property, they will have to pay income tax on the money they receive.
They will also be liable for capital gains tax when they sell it.
On the plus side, if you gift your home to your children, they will not need to pay stamp duty on the transaction.
What is the best way to gift a house to a child?
The best way to gift a house to a child is to make maximum use of your inheritance tax allowances.
If you play your cards right, you can leave a home worth up to £1 million to your children tax-free.
You can also continue to live in it for the rest of your life.
Everyone has an inheritance tax allowance of £325,000. That means no tax is due on the first £325,000 of assets you leave behind.
This allowance rises to £500,000 if you leave your home to your children or grandchildren.
Any assets you leave to your spouse or civil partner are free from inheritance tax.
Not only can they inherit your assets tax-free, but you can also transfer your inheritance tax allowance to them.
As a result, when your partner dies, your children can benefit from your combined allowances.
That means they can inherit up to £1 million of assets tax-free if you leave them the family home.
Although to benefit from this, the total value of all of your assets must be less than £2 million.
Find out more about this in our inheritance tax guide
How much can a parent gift a child tax free?
You can further reduce the amount of inheritance tax your children need to pay by making them tax-free gifts while you're still alive.
You can give away £3,000 of money or possessions each tax year without it being included in inheritance tax calculations.
This is known as the annual exemption.
The money or asset can go to just one person or be split between several people.
If you don’t use the full allowance in one year, you can carry it forward to the next tax year.
You can also give £250 to as many people as you want each tax year. This is known as the small gift allowance.
You can’t use this allowance if you have used another allowance for the same person.
If your child is getting married, you can give them £5,000.
You can also give money on birthdays or at Christmas tax-free.
In addition, you can give money to help your children pay their regular living costs, as long as the payments are made from your regular income.
Regular living costs include things such as childcare, a mortgage or rent.
Frequently asked questions on gifting a home to your children
Do I need a solicitor to gift my house to my children?
Yes, it is advisable to bring in a legal professional to handle the process of gifting your home to your children.
Transferring a property is a complex process. It's advisable to hire a conveyancing solicitor to help you with stamp duty, Capital Gains Tax, and inheritance tax.
What do I need to do to sell my house for £1?
You will need to hire a conveyancing solicitor to handle the searches and legal transaction.
It's also a good idea to employ the services of a tax specialist who can advise you on the tax implications of continuing to live in the home, alongside any taxes that might need to be paid, including Capital Gains Tax, and inheritance tax.
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