For many people their home is their biggest asset and forms a large portion of their estate when considering succession planning and inheritance.


As property prices have increased over the years, we find that lots of clients are keen to keep their home within the family so that the next generation can enjoy the nostalgia of continuing life in the family home and also benefit from a mortgage-free property.


Those approaching retirement may be considering transferring the ownership of their house onto their child/children to reduce their tax bill. But this is not quite as straightforward as many believe.


When it comes to passing on your property to your children or grandchildren, it is worth giving some thought to the following;


  • If you passed away within 7 years of making the property gift then it would still be included in your estate for Inheritance Tax purposes.


  • Your estate will only benefit from the IHT exemption if you survived 7+ years after gifting the property away.


  • However, if you continued to live in the property, you are still seen to have an interest in the property and this would be treated as a “gift with reservation of benefit” meaning it would still form part of your estate. To avoid this you could pay rent to your children, but this would need to be at market-rate and also then need to be declared as ‘income tax’ by your children.


  • If you decide to gift your property you will no longer be the legal owner. This could put you in peril if you were to fall out with your children or if circumstances were to change. They would have the right to sell the property, let it fall into disrepair, make changes or insist that you moved out at any time.


  • Consider the fact that your children’s partner could also be entitled to a claim on the property if they are married, were to get married or were to divorce. This could be navigated by putting in place a pre-nuptial or post-nuptial agreement between them.


  • If you are looking to reduce your inheritance tax liability, make sure that you are not hiking up a capital gains tax bill at the same time that could counter-act your objectives. Seek guidance from a tax advisor or your accountant before embarking on this.


  • Consider whether you might need to use the equity in your home to finance your later years or pay for care. If you give away your assets it may mean that you are only entitled to state funded care in the future.


  • Be aware that sometimes circumstances can change. House prices could drop, you could suffer from ill health, a family fall out could occur, your children could go bankrupt or divorce. All these scenarios could put you at high risk of losing your home and put you in financial difficulty. Consider how this would impact your situation before jumping into any agreements with family members.


Transferring assets can be seen as a way of masking wealth or tax avoidance. You need to tread carefully here and ensure that you are getting the right advice before making any moves to give away your home.


For some gifting property or large sums of cash may work well for their own circumstances but there isn’t a ‘one size fits all’ strategy when it comes to succession planning and it greatly depends on your own situation and aims.


Our specialist Private Client team may be able to suggest other, more tax efficient or risk-adverse ways of achieving a similar result through trusts or other wealth protection planning. Often calling upon the experience of our Family Law team and Property experts we can devise a bespoke plan to ensure that your property passes to the next generation smoothly.


For further guidance on this subject please contact James Phipps, Partner & Head of the Private Client Department on 01256 844888 or email enquiries@lambbrooks.com



The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice.  The law may have changed since this article was published.   Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.