Gifting Property: How To Transfer Home Ownership With Deed Of Gift (2024)

There are a number of reasons why gifting property to a family member can be a good idea, but the process isn’t always straightforward. In this post, we’ll look at why more and more people are looking at giving away their homes, how to execute a deed of gift, and what the tax implications are to gifting property as well. We’ll also touch on a few other points along the way, too.

First, though, let’s take a look at why gifting property is an increasingly popular option many homeowners consider.

Why is gifting property gaining popularity?

As stated in our intro above, there’s more than one reason why gifting property with a deed of gift may be an option to consider if you own your own home. In reality, though, there’s really only one reason why transferring property to family members has exploded in popularity over the last decade or so, and that reason is inheritance tax (IHT).

While there are various different ways in which IHT liabilities can be reduced, for the vast majority of us property is the number one consideration. As our most valuable asset, the home we live in is often the main cause of hefty IHT bills for the family members we leave behind, so it’s unsurprising that gifting property is something of a hot topic at present.

Is gifting my house to a family member the right choice for me?

As for so many other things we write about here on Petty’s blog, there’s no one-size-fits-all answer to this question. A transfer by way of gift is no small undertaking and it should be given the thought and care it deserves before committing to the process.

One thing to bear in mind here is whether or not your estate will actually be subject to IHT in the first place. The current allowance is £325,000 and married couples can combine theirs to a total of £650,000 worth of assets to be passed on after their deaths. While house prices have put many over this threshold, it may not be the case for you, so it’s worth bearing in mind before going any further.

Gifting property to family members with deed of gift

Despite the amounts involved, it is possible to transfer ownership of your property without money changing hands. This process can either be called a deed of gift or transfer of gift, both definitions mean the same thing.

Executing a deed of gift can be a complex undertaking, but it isn’t impossible. There are a few criteria that need to be met before considering a transfer of gift, and these are rather obvious and straightforward:

• The owner should be of sound mind and acting of their own free will
• Independent legal advice should be sought before commencing with a deed of gift
• The property in question should have no outstanding debts secured against it
• The owner is listed as such in the Land Registry’s proprietorship register

Should all of the above be met, transferring your property to a family member can be considered. There are, however, many potential intricacies you may come across during the process, so professional advice is best sought before any official action is taken. A good estate planning advisor could be worth their weight in gold here.

As one would expect, there are plenty of forms to fill out in order to complete a deed of gift and your solicitor or conveyancer will be able to give you the most up to date advice on how to handle these. Land Registry will require both TR1 and AP1 forms to be completed, along with an ID1 form should you be acting on behalf of yourself without legal representation (something that isn’t advised in this instance).

Seeking out a solicitor who has handled deed of gifts in the past is worth the effort. Remember that once a gift deed has been executed in favour of a recipient you’ll have no legal right to cancel or revoke the deed unless there is a specific clause stated within the deed itself. Having a competent and reputable solicitor handle your transfer will allow you to make such changes should they be the correct course of action for your own individual circ*mstances.

Gift With a Reservation of Benefit

If you choose to make a gift of your home during your lifetime, you should be aware that the gift will not be practical for Inheritance Tax purposes unless you truly gift it. In other words, you must divest yourself of any interest in the property before the Inland Revenue recognises the gift.

Suppose you continue to live in the property after you have gifted it. In that case, you will be seen as having “reserved the benefit” of the property, and the gift will be set aside for Inheritance Tax purposes, even if you should survive the gift by seven years.

For a gift not to be caught by the Gift With a Reservation of Benefit rules, you must leave the property when it is gifted and never move back in. This inconvenience can, of course, lessen the appeal of such a gift.

You can make arrangements to avoid the gift being considered a Gift With a Reservation of Benefit, such as whereby the individual gifting the property pays market rent to stay in occupation of the home. You should consult a legal advisor to establish whether or not such an arrangement would suit your circ*mstances.

Risks associated with gifting property

There are, of course, risks involved with gifting your property, even if it is to a family member. These are, thankfully, not particularly common problems, but to dismiss them out of hand would be foolish.

Although it may seem obvious, it’s important to realise that once the deed has been executed, you will no longer be the legal owner of your home and, as mentioned above, you’ll have no way of reversing the decision unless you have added a specific caveat to your deed prior to completion. This is fine in the vast majority of instances, but donors falling out with their beneficiaries isn’t entirely unheard of, so it should be something you at least give some thought to.

Another issue donors may come across is when their beneficiaries experience problems of their own, namely divorce. Should you have gifted your property to your son or daughter and they go on to experience marital strife that results in divorce, there’s every chance that their wife or husband will have the opportunity to claim a portion of your property for themselves.

Finally, there’s the financial stability of your beneficiary to take into account. Many a donor has been left distraught (and, in some instance, homeless) by family members losing the property due to undisclosed financial problems, so be sure to talk things through openly before proceeding. Remember, if there is any chance your beneficiary will be declared bankrupt, your property will be at risk.

While you are indeed gifting your property to them, so it’s effectively theirs to do with as they please, it’s important that your beneficiary is aware of these issues too...especially if you intend to continue living in the property after the transfer by way of gift has been completed.

What are the tax implications for property gifts?

Before we give a brief overview to the tax implications associated with a deed of gift, it’s important to point out that tax is a specialist and fast-changing area of expertise. Therefore, it is absolutely vital for you to seek professional and up to date advice before making any final decisions concerning your property and future.

Contrary to some people's thoughts, inheritance tax is not something that goes away as soon as the deed of gift has been executed. IHT, in fact, will remain an issue for seven years after the transfer completes, meaning that should the donor die before the seven years are up, the beneficiary will still be liable for IHT.

Property gifts are considered a ‘potentially exempt transfer’ and the full 40% of IHT will need to be paid should the donor pass away within the first three years of the transfer. Every year after that, up until the eighth year, eight percentage points will be deducted from the beneficiaries IHT liability. Once the full seven years have passed, the beneficiary will be the sole owner and the property will no longer be regarded as part of donor’s estate in terms of taxation.

NOTE: It's important to remember, however, that you will need to pay rent at full market value to your giftee from the moment you pass the property on should you wish to continue living there. The only other alternative is to move out, unfortunately.

Stamp duty should not be an issue with a deed of gift, as it is only payable if there is a mortgage attached and there shouldn’t be any debt secured against the property when completing a transfer of gift.

Under current rules, HMRC will still make the donor liable for Capital Gains Tax should the property being gifted be deemed a second home. Income tax would also be a factor should the property in question be a rental home and the gift made to a child. It would also be a consideration for your beneficiary should you opt to remain in your property and pay rent to them, as they will then be liable to income tax on the rent you pay.

Again, seeking expert advice is prudent for all matters of tax and law.

Alternatives to property gifting with a deed of gift

There are a number of alternatives to a deed of gift that could be explored if this method isn’t the most suitable option for you or your beneficiaries. Straightforward sale and purchase arrangements can be made when the original owners do not wish to remain on the legal title or should the new owners wish to take out a mortgage, for example.

Concessionary purchase is another avenue some may wish to pursue. Concessionary purchases are generally used in instances where the owner doesn’t want to give away the property but is prepared to let it go at a discount. This method means they will still receive a sum of money whilst the new owner, usually a son or daughter, can purchase the property at a discounted rate.

Finally, there’s transfer of equity. This is where one or more of the original owners remain on the legal title. Transfer of equity can be a tricky process to get right and there may still be tax implications for the current owner should they choose to go down this particular route.