couple outside red brick family home with their two children

Are you considering gifting your family home, if so, what do you need to take account of when transferring ownership of your house to an individual or family member?

When reviewing your Estate Planning there can be a number of issues that arise in relation to the family home and we are seeing an increase in clients wishing to gift or transfer their property to other generations as part of their Succession Planning with a view to saving Inheritance Tax (IHT) or to protect assets from being used to fund long-term care costs. This is not as straightforward as it might at first appear and there are a number of potential pitfalls to bear in mind

What To Consider When Gifting Your Home To An Individual/ Family Member

When considering giving away your home you need to think about the following particularly if the intention is that you will continue occupying it:

  • What happens if there is a dispute in the future prompting the person to whom the property has been transferred to want to sell it?
  • If the person given the property has financial difficulties, (becomes bankrupt or is involved in litigation) might the house be sold to settle their debts and put your occupation of it at risk?
  • What happens if the recipient goes through a divorce and the property is seen as an asset in dividing up the matrimonial pot? It may need to be sold to pay out the spouse; or
  • If the new owner dies before you, what happens to the house?

Living In A Home After You Have Transferred Ownership

If the property that you live in no longer belongs to you, will you have a say in whether you remain there? No, not unless you can protect your right to occupy the property in a manner that still achieves your objectives.

Where would you live if you had to leave the property? All of the listed events may make the donor of the property extremely vulnerable especially as more often than not, the property is the main asset of a person’s estate.

Other Consequences

There may also be adverse tax consequences in respect of a transfer to a member of the family in terms of IHT. A straightforward gift of your home is unlikely to either prevent or mitigate any IHT. If you continue to reside in the property, then this will be considered a ‘gift with reservation of benefit. Unless additional steps are taken such as your paying a full market value rent to continue occupying the property throughout your lifetime, the gift will not save IHT on your death. The rent will be taxable income for the person to whom the property was given.

The beneficiaries of the gift will also be subject to paying capital gains tax (CGT) on the chargeable part of the gain in the value of the property between the date of your gift to them and their later disposal of the property. The normal principal residence relief for CGT purposes is unlikely to apply.

If the intention is to shelter the value of the property from being used to fund long-term care costs, the intention may be thwarted by the deprivation of an assets’ rule.

Seeking Advice On Gifting Your Family Home

If you are considering making a gift of your home we recommend that you proceed with caution and only with the benefit of independent legal advice to ensure that you achieve the intended outcome.

If you are thinking of gifting your property, and wish for further advice, please contact our Private Client Team.