Yes, you can gift your house to your children. One of the most common methods is through a Transfer for Nil Consideration, often known as a Deed of Gift. This process allows you to transfer ownership without monetary exchange. By doing so, you can potentially reduce your Inheritance Tax (IHT) liability, benefiting your estate planning.
However, it’s crucial to meet specific conditions to successfully gift your property:
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You must be the legal owner of the property.
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The property should be free from any outstanding mortgages or loans.
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The transfer should be a genuine gift with no money exchanged.
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You should not retain any benefit from the property, such as living in it rent-free, without paying a market rate rent.
Can I gift my house to my children if I still have a mortgage?
Mortgage lenders typically require the mortgage to be paid off before transferring ownership. This means the transaction must be a genuine sale, covering the loan balance.
If you wish to transfer ownership and retain the mortgage, you must seek the lender’s consent. Another option is transferring equity, which involves changing the property’s ownership proportion without a complete transfer. This can be beneficial for tax planning but requires specialist advice.
What is a Transfer of Equity?
A transfer of equity is the process of changing the ownership structure of a property. For example, if you own a house with a mortgage and want to add your child as a co-owner, this can be done through a transfer of equity. It’s a strategic way to reduce inheritance tax liability, but it requires careful planning and professional guidance.
What are the tax implications of gifting my house to my children?
When you gift a property, you transfer ownership without monetary gain, which can reduce your inheritance tax liability. However, several tax considerations should be noted:
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Inheritance Tax: If you die within seven years of gifting your property, inheritance tax may still apply. The tax liability reduces incrementally after three years but is entirely exempt after seven years if you gift more than the nil rate band of £325,000.
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Stamp Duty Land Tax (SDLT): Generally, SDLT is not payable on a genuine gift where no money changes hands. However, if the property has a mortgage or a price is paid, SDLT may be applicable. Consult your solicitor for specific advice on SDLT.
Can I live in the property once I have gifted it to my children?
If you continue to live in the property rent-free or without paying market rent, HMRC considers this a gift with a reservation of benefit. In such cases, the property remains part of your estate for IHT calculations. To avoid this, you must pay a market-rate rent if you wish to continue living in the house after gifting it.
Are there any risks when gifting property?
Gifting property comes with potential risks:
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Loss of Control: Once transferred, you no longer have control over the property.
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Financial Issues: If your child faces financial difficulties, the property could be at risk.
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Family Disputes: Gifting property can sometimes lead to family disagreements.
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Tax Liabilities: There could be unforeseen tax implications, so professional advice is essential.
Frequently Asked Questions
What is the Legal Process to Gift Property to Your Family?
The process involves drafting a Deed of Gift, obtaining a property valuation, clearing any mortgages, and registering the transfer with the Land Registry. Professional legal advice is recommended to navigate this process smoothly.
Can You Gift Property for Less Than the Market Value?
Yes, but this is considered a partial gift and partial sale. You will still need to consider the tax implications and possibly pay SDLT if a mortgage or any consideration is involved.
Final Thoughts
By understanding the legal and financial aspects of gifting property, you can make informed decisions that benefit both you and your children. Always seek professional advice to ensure compliance with legal requirements and to optimise your tax position.
Our sister company Capital Private Finance can help you with expert mortgage advice, ensuring a smooth and successful experience. For more information on how we can assist you, please contact us or find your nearest branch.
