Inheritance Tax Mitigation: Can I give my home to my child(ren)?

You have been doing some reading and your home is clearly the most valuable asset in your estate and if you gift it to your children, your estate will not have an expensive Inheritance Tax bill to pay. Or perhaps you have a number of properties and are thinking of giving your second home to your children.

Of course, you can gift your property to your children. It is your home, and you can do what you like with it. But, as with most good ideas, there are some important considerations you should be aware of.

Inheritance Tax

First the good news; if you decide to gift your home to your child, there is no immediate Inheritance Tax bill to pay.

But, a gift of your home is, as far as Inheritance Tax is concerned, a ‘potentially exempt transfer’. That means that you need to survive a further seven years from the day of the gift so that the property does not form part of your estate for Inheritance Tax purposes.

You also need to be certain that you are not going to need the property in the future. So, if you intend to continue living in the property, you need to make sure that you have the funds to pay a market rent for the time you spend living in the property after you make the gift. If you do not, or if you pay not quite enough rent, the property could still be considered as yours when you die, even after the gift. The upshot being that the property is subject to Inheritance Tax. Further, your children will have been paying income tax on your rent – a far from desirable outcome but one which, with the right advice, can be avoided.

Capital Gains Tax

If you have more than one home and you wish to give a home that you no longer need to your children, you should be aware of the additional Capital Gains Tax consequences of doing so. When you give away a home that is not your main residence, the gift is a ‘deemed disposal’. This means that you may have to pay Capital Gain Tax when you make the gift, so you need to ensure you have the funds available to pay this tax bill.

There are of course a number of other considerations and consequences of gifting property, including, if your property is subject to a mortgage, if it is leasehold, if you are thinking of this type of gift to reduce your future care fees. No two scenarios or families are the same and each requires specially tailored advice to ensure your gift is effective and avoids common pitfalls. To discuss the gift(s) you are considering, please contact a member of our experienced and specialist Private Client team by calling us on 01628 631051 or email privateclient@colemans.co.uk and we can make an appointment via Zoom to guide you through the practical and taxation consequences of what you want to do.

The author of this note is Harriet Rawlings. To find out more about Harriet, click here

Categorised in: Wills, Probate and Trusts

This post was written by Colemans Solicitors LLP