Considering gifting a property to your loved ones? Make sure you understand the financial implications first.

Before giving a property to your children, make sure you understand the rules, and any costs involved. Otherwise, what could be a wonderful gesture can leave a bitter financial taste. 

There may be a number of reasons you want to hand over your property. You may have another home to live in or be moving into care, or you might want to help your children on to the property ladder. 

It may also form part of your estate planning, with the aim of slashing the amount of inheritance tax (IHT) you’re liable for over the long-term.   

The good news is that rules state that you can give your property to your children - even if you’re currently living in it. But there are potential costs, and it's important to understand what these are. 

1. The impact on inheritance tax (IHT)

If you gift a property to your child to cut the value of your estate for IHT purposes, this is a so-called ‘potentially exempt transfer’.

If you die within seven years of making the transfer, then the property will be considered as part of your estate value for IHT purposes. 

But if you live for seven years or longer, there will be no IHT to pay on the value of the property, and you’ll have managed to reduce the overall value of your estate.

2. If you remain living in the property

In this case, gifting a property is considered a ‘gift with reservation of benefit’. This means that you keep the right to benefit from the property, ie. live in it, and it will form part of your estate on death. That’s even if you live for more than seven years after gifting the property to your children. 

You may be able to get around this particular rule by paying rent to your children, if you want to take your property out of your estate for IHT purposes. But it’s important to seek professional advice, as the rules can be complicated. 

3. Falling foul of other rules

If you give a property to your children, the council may consider this a “deliberate deprivation of assets” – or, in other words, a way of avoiding paying for potential care home fees. 

The council may think you are trying to hide wealth tied up in your property to avoid paying for care later down the line because whether you are liable to pay for care, depends on the value of your assets. 

In this case, the transfer of ownership may be reversed, and you find the property is back in your name. 

4. And remember…

You will no longer be the legal owner of the property if you sign it over to your children. 

There may be issues further down the line, if you regret the decision, or there’s a family dispute. 

In theory, you could be asked to leave your own home by your own children, if they want to rent or sell the property. Though, of course, you’d hope this wouldn’t happen. 

Also, if your child is married, and you sign over your home, and they then divorce, bear in mind that their ex could have a rightful claim over the property. 

There are plenty of scenarios you may want to factor into your decision-making, before giving a property away. 

Seek professional advice before gifting a property to children, or anyone else, including on tax and other financial issues that may arise as a result of this.

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Have you tried to give property away, and if so, what has been your experience? Let us know in the comments, below...

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