Can I Gift My Home or Other Property to Children?

The simple answer is yes, you can gift both your main home and/or investment property to children or other loved ones.  It is a mistake to think you arelimited to only gift £3,000 pa (the annual inheritance tax gifting allowance).  In most cases, the amount that you can gift is unlimited although, if you gift larger amounts than £3,000, it then becomes Potentially Exempt Transfer (PET) wher you must survive for 7 years for the full value to fall outside your estate for estate and inheritance tax calculation purposes.

There are subtle differences though that you should be aware of when making decisions to transfer ownership of your main home and/or investment property.

Inheritance Tax 7 Year Rule

• Both main home and investment property are caught by PETs and the 7 year giftiing rule.

Capital Gains Tax CGT Payable By You When Gift To Another

• Main Home: No but new owners e.g.  children may be subject to CGT if they do not live in the property but keep it as an investment property and later sell it at profit.
• Investment Property: Yes.  In addition, new owners children may be subject to CGT if they do not live in the property but keep it as an investment property and later sell it at profit.

Stamp Duty Payable When Gift To Another

• Both main home and investment property do not suffer stamp duty on transfer of ownership unless there is a mortgage/financing debt secured on the property which may mean stamp duty is payable on transferring or sharing the mortgage debt.

Inheritance Tax Nil Rate Bands

• Main Home: Full £325,000 nil rate band plus residential nil rate band £175,000 (assuming gift to direct line descendants).
• Investment Property: Full £325,000 nil rate band only.

Gift With Reservation GWR (Still Includes In The Estate)

HMRC may consider the property a gift with reservation if you continue to live in or benefit from the property i.e., “you have not really given the property away have you Mrs & Mrs Smith as you still live in it”.

• Main Home: Yes, considered GWR if you stay in the property rent free.  Considered not a GWR and 7 year clock starts ‘ticking’ if you pay market rent to the new owner(s) e.g.  Children.  New owners will also be subject to income tax on rent.
• Investment Property: Yes, considered GWR if you keep the rents received i.e.  children do not get the rent.

Care Fees Means Test

• If you have an illness/injury that may lead to you needing care and you gift either your main home or investment property to avoid the care fees means test (deliberate deprivation of assets), the value will be included in the care fees means test.
• If you have are fit and well, have no illness or injury that may lead to suspect that you may need care and you gift either your main home or investment property in good faith, the value will be not included in the care fees means test.

Divorce of Children

• If you have gifted your main home or investment property to children and they subsequently divorce, their share of the propertygift may be included in any financial settlement on divorce.

General Comments

• Yes, it is a sensible thing to consider gifting property early but make sure you pay rents, the new owners being subject to income tax on rents and capital gains taxes on sale.
• Consider severing joint tenancy on the property so that on death, you half of the property passes jn trust to loved ones.
• You may wish to consider gifting a small a small value of the property each year e.g.  £3,000 annual inheritance tax gifting allowance, or for a couple it is £6,000 pa.  Each share another £3,000/£6,000 of the value of the property is signed over to loved ones but remains within the IHT £3,000 annual exemption and is immediately outside the estate.

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