Can I Give My House To My Children?

Are you thinking about inheritance tax and wondering, can I give my house to my children? Gifting a property to your children can be a complex process with various considerations to keep in mind.

In this insight, we'll explain the key things to consider when gifting a property to your children, including potential tax implications and the process of transferring equity.

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Key Takeaways

• If you give your house to your children, they could potentially become liable for inheritance tax.
• You can offset any IHT liability with a gift inter vivos insurance policy.
• If you have a mortgage, you will need to transfer the equity to your children, but they must be over 18.
• Speak to a financial adviser to determine your tax liabilities and whether a transfer of equity is required.

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Can I Give My House to My Children?

Yes, you can gift your house to your children. However, there are a few things you should be aware of, such as capital gains and inheritance tax, as well as legal fees, tenancy agreement or mortgage complications:

Capital gains tax

If you own the house and you sell it to your child at a lower price than its market value, you may be liable for capital gains tax on the difference between the sale price and the market value. HMRC treats gifts and undervalue sales between connected people as taking place at market value for CGT. Importantly, if the property has been your only or main home throughout, Private Residence Relief usually means there is no CGT to pay on it. Capital gains on other residential property are taxed at 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers, above the £3,000 annual exempt amount.

Inheritance tax

If you give away your house as a gift and you die within seven years of making the gift, the house may be included in your estate for inheritance tax purposes. For more information on the 7 year inheritance tax rule, read: What is the 7 Year Rule In Inheritance Tax?

A common trap is the "gift with reservation of benefit": if you give the house away but carry on living in it without paying a full market rent, HMRC still treats it as part of your estate for inheritance tax, so the gift does not achieve the intended saving.

Mortgage complications

If the house is subject to a mortgage, you will need to get the mortgage lender's permission to transfer the property to your child.

Tenancy agreements

If the house is rented out, you will need to make sure that any tenancy agreements are transferred to your child.

Legal fees

You will need to pay legal fees to transfer the house to your child.

Before deciding how to proceed, it's a good idea to spend some time inheritance tax planning and to think about the bigger picture of how you want to create a legacy for future generations.

Looking For Financial Advice?

If you're looking to gift your property... Now is a good time to seek financial advice. Financial advice helps you to review your retirement, tax, and Trust needs, making sure you achieve what is required for you to avoid IHT Tax.

We can help you find a financial adviser to offer you the very financial advice. Complete our Sunny Fact Find form to provide us a bit more detail about your circumstances and we'll find the best-suited adviser for your needs.

Your appointed adviser will contact you to discuss how they can help, you decide how to proceed. This service is free.

Can I Give My House to My Children and Carry on Living in it?

Yes, it is possible to gift your house to your children and continue living in it. You could do this through a life tenancy agreement, by renting the house from your children, or by entering into a lease agreement with them. Keep in mind that you will no longer be the legal owner of the property and will need to respect the rights of the new owners.

However, this is where the gift with reservation of benefit rule matters most. If you stay in the property without paying a full market rent, the home usually remains inside your estate for inheritance tax, defeating the purpose of the gift. Paying a genuine market rent can avoid this, but the rent then becomes taxable income for your children. Because the rules are intricate, it is worth exploring trusts and wider estate planning options with a professional before acting.

Can I Sell My House to My Children?

Yes, you can sell your house to your children. However, you should be aware that you may be liable for capital gains tax on the sale if you sell the house to your children for less than its market value.

If I Sell My House to My Children and Carry on Living in it, Do They Need a Buy to Let mortgage?

If you sell your property to your children and they need to raise a mortgage, it would be possible for them to apply for a buy to let mortgage or a residential mortgage. A residential mortgage is acceptable as you are an immediate family member living in the property. You will need to notify your solicitor of your intention to remain in the property.

Although a residential mortgage may be cheaper than a buy to let mortgage, an affordability assessment will be required and that might make it harder to qualify for it.

Choosing a Buy to Let mortgage would allow for the affordability assessment to be based on the estimated rental income for the property. However, you will need to be paying a rent for this scenario.

Can I Sell My House to My Children at a Discount?

Yes, you can sell your house to your children at a discounted price. However, you may be subject to capital gains tax on the sale if the discounted price is lower than the market value of the house. You should also be aware that the house may be included in your estate for inheritance tax purposes if you die within seven years of the sale. You will need to pay legal fees and may need to get permission from the mortgage lender to transfer the property. It is advisable to seek legal advice before selling your house to your children.

You can protect yourself against the liability by arranging Gift Inter Vivos.

Do I need to Pay Tax if I Give My House to My Children?

There are several tax implications to consider when gifting your home to your children. These include inheritance tax, stamp duty, and capital gains tax.

Inheritance tax

If you give away your home as a gift and you die within seven years of making the gift, the home may be included in your estate for inheritance tax purposes. The nil-rate band is the amount an estate can pass on before inheritance tax becomes payable. It is currently £325,000 and has been frozen at that level for some years. On top of this, where a home is left to direct descendants (children or grandchildren), an additional residence nil-rate band of up to £175,000 may apply, though it is tapered away for larger estates. Everyone's situation is different, so these allowances are best confirmed with an adviser as part of your inheritance tax planning.

If you survive the 7-year period, there is no tax payable on the gift.

If you sell the property at a discount, and pass away during the 7-years, inheritance tax will be due on the difference between the purchase price value and market value. This would be calculated as the gift amount.

Stamp duty

Stamp Duty Land Tax (SDLT, in England and Northern Ireland) is charged on the "chargeable consideration" given for a property. An outright gift for no money usually means there is no SDLT to pay. However, if your children take over an outstanding mortgage as part of the transfer, the debt they assume counts as consideration, and SDLT may become due if it exceeds the £125,000 threshold. If it is a second property for them, the additional-property surcharge (an extra 5%) could also apply. Scotland and Wales use their own equivalents (LBTT and LTT).

Capital gains tax

If you own the home and you sell it to your children at a lower price than its market value, you may be liable for capital gains tax on the difference between the sale price and the market value.

Advice on gifting your home to your children

To help you discuss your options and understand the implications of selling your home to your children, you may want to consider working with a mortgage adviser.

A mortgage adviser can help you to understand the mortgage options available to you and your children, and can assist you with the process of transferring the mortgage or paying it off as part of the sale. They can also provide you with guidance on the tax implications of the sale and can refer you to a legal professional if necessary.

It is also worth understanding why inheritance tax exists and, if you are weighing up later-life options, how equity release relates to inheritance tax, as both can shape the best route for your family.

Source: Gov UK on Gifts and IHT, Money Helper on Gifts and exemptions