KDW Financial Planning (2024)

Posted on 22/05/19 by Sophie Fillmore

As a parent, you help and support your children through all stages of life. It seems only natural to give them everything you have including your home. Is this a good idea? In simple terms no!

As a homeowner, you are permitted to give your property to your children at any time, even if you live in it. But there are a few things you should be aware of being signing over the family home.

You will no longer be the legal owner of the property

If you transfer your property into your child’s name you will no longer be the legal owner. Meaning, you could be forced out of the property for instance if you fall out, if your children decide they want to sell or rent the property or perhaps even live there themselves.

What if your son/daughter is going through a divorce? Their ex-spouse would have a legitimate claim against their estate which would also include your property.

Another risk to think about is bankruptcy. Unfortunately, you will have no control over any of these consequences.

Capital Gains Tax (CGT)

Capital Gains Tax is charged when an asset that is classed as an investment goes up in value. If your children are not living in the property when you transfer into their name and the property increases in value, it will be subject to Capital Gains Tax when they sell. Equally, if you are giving away a second home or holiday home, then you may be liable to pay CGT on any increase in value that has occurred between first owning it and giving it away.

Residential Care fees

The most common reason why people transfer their property to their children is to avoid having to pay for care fees. The council could view this as “deliberate deprivation of assets”.

Note: If the local authority deemed this to be the case, they can reverse the transfer of ownership. This means the home is switched back to the parents.

Transferring property to your children like this does NOT protect your home.

Inheritance Tax (IHT) - Gifts with reservation of benefit

It may seem there are IHT advantages in gifting a house because gifts generally become IHT exempt after 7 years.

However, if you sign over your house but remain living in the property, this would then be treated as a “gift with reservation of benefit.” This means you reserve the right to benefit (live in/out) from the property.

According to tax rules, the house will then remain part of your estate on your death, even if you live beyond seven years. One way to get around this is by paying rent to your children. But you will have to pay market rent (the going rate for similar local rental properties) to take it out of the IHT net.

You also need to bear in mind that your children will then be liable for income tax on the rent you pay them.

If you want to take steps to ensure that your assets are protected and used in a way that benefits your loved ones we are here to help.