What are the rules surrounding gifting property to my children?

Disclaimer: Ackroyd Legal is not regulated to give tax advice, tax information has been obtained from the UK government website.

Why do people gift property to their children?

It is pretty common to gift property to a child or children for a number of reasons. The main reason people probably do this is to save their children from being subject to Inheritance Tax. But many people are not fully aware of the rules surrounding gifting property and often go ahead without considering all the information.

Another reason for transferring ownership to children is to give them a place to live and own or somewhere they can rent out and earn an income from.

This article will go through the rules regarding gifting property so that you can consider whether it would be beneficial for you and your family.

Can I gift property to my child?

Yes, you can give your property to your child providing you own it and if owned jointly, you have permission from the other owner.

What are the tax implications of gifting property to a family member in the UK?

Inheritance Tax is usually owed on property that is inherited as part of an estate after someone dies. If someone gives their property as a gift to their child before they die, Inheritance Tax may not be required if:

The property is worth less than £325,000
You have gifted the property in the 7 years before your death

Where Inheritance Tax is due, gifts will be taxed at different levels, at the time of writing, the following tax percentages apply to gifts:

40% for gifts 3 years before death
32% for gifts 3-4 years before death
24% for gifts 4-5 years before death
16% for gifts 5-6 years before death
8% for gifts 6-7 years before death

How do I gift property to my children?

You can gift property to your children in a few different ways. It is advised that you seek legal advice before you proceed with one option, as it is best to assess which route would be most suitable for your situation.

Option 1: Sell the property to your children at the market price.

You will need to go through the usual steps to sell your property including instructing a conveyancer, applying for a mortgage (if applicable), undertaking searches on the property, and having completion and exchange of contracts arranged.

Option 2: Sell your property to your children at a reduced price.

This option will consist of the same process as selling your house at the full market value. However, Capital Gains Tax will apply to any increase in appreciation which will be judged on the current market value.

Option 3: Transfer your property through “transfer by deed of gift.”

You can transfer the property ownership via a TR1 form. A solicitor will need to be appointed to go through this process.

Do you have to pay Capital Gains Tax on gifted property?

Capital Gains Tax is a UK tax that is due on the profit when you sell (‘dispose of’) your house that has increased in value. Capital Gains Tax may be due if the value of your property is worth more now than what you bought it for.

If you gift your house to your children, then HM Revenue and Customs will look at the current market value of your property when you gifted it. You will only need to pay the amount above your annual tax-free allowance.

What happens with Capital Gains Tax if I gift my property to my child and then I die?

In most cases, Inheritance Tax is due on inherited assets such as property. Capital Gains Tax will only be payable if the property is later sold.

How much is Capital Gains Tax?

Capital Gains Tax is 28% on gains from residential property.

Do you need to pay Stamp Duty on gifted property?

You will not need to pay Stamp Duty Tax on gifted property providing there is no outstanding mortgage on it. If the remaining mortgage is taken over by your children then Stamp Duty Tax will be due if the value of the mortgage is over the threshold.

The current threshold for residential properties is £125,000 and for non-residential property is £150,000.

Can I gift my property to my child and still live in it?

You can give away your house to your child and still live in it, but you will have to pay bills and rent at the market rental value rate which is the amount that houses are currently being rented at in the area. You should live there for at least 7 years otherwise, the property will be classed as part of your estate and therefore subject to Inheritance Tax.

What happens if I want to gift my property to another person?

You do not usually pay Capital Gains Tax or Inheritance Tax on property given to your spouse or civil partner providing they live in the UK permanently.

Summary

Gifting property can seem like a very nice idea on the face of it, but when you consider the laws surrounding gifting your home, you need to be careful that you are acting in the best interests of yourself and your children. Depending on when and how you gift the property, there may be tax implications for your children. It is important to assess your options and seek advice before taking action.

Can we help?

At Ackroyd Legal, we know that gifting property can be complicated and very much dependent on each individual’s personal circumstances. If you would like assistance with transferring ownership of your property or selling your property, please contact of our expert team of residential property solicitors for further advice on how we can assist you. Contact us today on 020 3058 3363.