Can I Give My House to My Children to Avoid Inheritance Tax?
The very short answer is yes you can, but you probably shouldn’t as there are some very serious consequences for you to consider.
It’s easy to understand why you think this would be a good idea. By giving your home to your son or daughter whilst you’re still alive you can maximise your Estate and reduce the Inheritance Tax bill for your children.
But giving away, also known as gifting by most Solicitors, your property can leave you with some very serious issues. Make sure you carefully consider all of these potential consequences before you give your property away to your children, or sell the house to a family member for £1.
For free legal advice call our Wills and Trusts Solicitors.
Consequences of Giving Your House to Your Child
You’ll have to pay a market rate rent to your children
If you do decide that you want to give your property to your children before you die, but continue to live there you will have to pay market rate rent to your children. If you don’t, HMRC will argue that you’ve not made a valid gift to your children. This is because you’ve retained the whole benefit of the property – you still live there and they don’t. This is called a Gift with a Reservation of Benefit. It means your property would still form part of your Estate and your children would still pay Inheritance Tax on it regardless of when you gifted it.
Your children may have to pay additional tax
HM government introduced new rules on owning more than one property. If you gift your property to them and then they decide to buy another property, they’ll probably have to pay a higher rate Stamp Duty Land Tax. This is because they are considered to own a second home. This is an additional 3% of the purchase price. If your children are not living in the property you gifted them as their main home and they sell it, they may also have to pay Capital Gains Tax on the increase in value.
Your children could divorce or be made bankrupt
Obviously no one wants to consider divorce or bankruptcy for their children, but you never know what’s round the corner in life. If you gift your property to your children and they divorce, it may form part of the divorce settlement and their former partner could be entitled to half of it. If you child is bankrupt, the property may have to be sold to pay off their debts as it’s a valuable asset.
Your children could die before you do
It’s unlikely that one of your children will die before you, but if they did, their share of your home would form part of their Estate. This means you could find that you own a property with your son or daughter in law or even your grandchildren. This can be a complicated arrangement and could result in arguments within the family about the house.
Local Authorities may refuse to fund your care
If you give your property away to your children and you need residential or nursing care in the future, the Local Authority could argue that you have given your home away to avoid paying care home fees. This is called Deliberate Deprivation of Assets. If the Local Authority decides that this is the reason you’ve given your property away, they could decide not to fund your care.
Disagreements with your children
Hopefully you never do have disagreements with your children, but disagreements are more serious if you have gifted your property to them. You could find yourself in a very difficult legal situation if you are still living in your home. Your children could potentially ask you to leave or sell the property out from under you and you wouldn’t have any legal rights to stop them.
As you can see, this is a complicated decision to make and there are some serious drawbacks to gifting your property to your children. You may find that there are better options available to you that can protect your property, reduce your Inheritance Tax liability and protect you at the same time.
For free legal advice call our Wills & Trusts Solicitors
We're happy to help
Monday to Friday 8:30am-7:00pm
08002 605 010
We're happy to call you
Simply click below to arrange a call
Simpson Millar is a national law firm with over 500 staff and offices in Bristol, Cardiff, Lancaster, Leeds, Liverpool, London - Euston, London - Fleet Street, London - Teddington, Manchester and Southport.