Gifting Property to Children

• You can transfer ownership of house to a family member or spouse, but this will attract gift tax on property transfer, such as capital gains tax.
• To achieve the gift transfer, you can make a standard sale and purchase for under market value, a deed of gift, or a transfer of equity, whichever suits your circumstances.
• If a mortgage on the gifted property exists, you will need a mortgage agreement from the lender.
• Children under the age of 18 cannot legally own property, so the property must be held in trust for them, with an adult acting on their behalf.
• You may find this article useful: Can I buy my parents house under market value?

Gifting property to children, spouses, or civil partners is very common. However, the process can be confusing as there are several routes for transferring property ownership. There are tax implications for gifting a property under the full market value. Read more about this in: Capital Gains Tax on Gifted Property for Married Couples and Capital Gains Tax on Gifting Property to Children.

This article focuses on how to gift property to children and other family members.

Can you gift property to a family member?

Yes, you can gift your property for nothing, or for less than its worth. You must be of sound mind and not acting under pressure from anyone else, and you must be the registered owner at the Land Registry.

When transferring ownership of property from parent to child, spouse or family member, you need to choose the quickest and most affordable route, there are four ways to gift your property:

• 1Sale and Purchase at full market value of the property
• 2Sale and Purchase at under the market value
• 3Deed of Gift, also known as a 'Transfer by Way of Gift'
• 4Transfer of Equity

Gifting a property to a child

This article focuses on gifting property to family members who are 18 or older. If you are gifting a property to a child under the age of 18, you can do so with a 'bare trust' or more formal trust which is a legal entity in its own right. The donor appoints trustees, which may include themselves, to manage the asset(s). The property and any net income legally belongs to the child. Once they turn 18 they can do what they like with it.

When parents are placing a rental property into trust for a child under the age of 18, the income will be taxed on the parents as if they still owned the asset. Gifts valued over the nil rate band made to trusts are subject to an immediate charge of Inheritance Tax at 20%.

Gift from parents tax liability and risks?*

These are the potential tax consequences and risk considerations for gifting property to children:

Insolvency

The transaction could be voided if you are made bankrupt within five years of gifting a house.

Inheritance Tax Payable

If you die within 7 years of gifting a house, then the full value of the gift is counted as part of your estate when assessing your tax liability for inheritance tax purposes. Inheritance tax is payable on your total estate (plus gifts made in the 7 years preceding death) over £325,000. This tax free allowance exceeds to £500,000 if the total estate is worth less than 2 million and includes your primary residence, which is given to your children (including fostered and adopted children). When one spouse dies, their remaining allowance can be carried over to the surviving spouse.

If you survive at least 3 years after making the gift, but less than 7 years, Inheritance tax will be applied at a tapered rate.

If you continue to live in the house after gifting it, unless you pay full market rent, you are still enjoying the benefit of the property and it will be included in your estate for inheritance tax, regardless.

Capital Gains Tax Implications

You don't pay CGT if you're gifting your primary home. Suppose the property isn't your principal place of residence, you are gifting a second home to a child or other a connected person. In that case, you have to pay Capital Gains Tax based on the full market value, not for the gifted amount. Capital gains tax is payable on the increase in the value of the home since you acquired it, less improvement costs and associated costs such at legal fees, Stamp Duty and estate agent's fees.

No tax is payable on the first £3,000. Add what's left to your total taxable income. If this amount is within the basic income tax band you'll pay 18% CGT on residential property and carried interest. You’ll pay 24% on any amount above the basic tax rate and 28% on carried interest. Even where there is no tax to pay, the gift must be reported to HMRC within 30 days.

Care home fee avoidance.

If you are gifting your property to avoid care home fees, then this could be viewed by the local authority as a deliberate deprivation of assets.

You need the money back.

A gift is not a loan, and you have no legal right to enforce the repayment of the gifted property. Read more here - you make a loan instead of transferring property ownership from parent to child. How do I avoid capital gains tax on gifted property? *

Do I have to pay capital gains tax on gifted property?

Capital gains tax is payable on the market value of property or percentage of the property being gifted.

In certain circumstances, You can avoid paying capital gains tax charges if you transfer ownership to a spouse or gift the property to a charity. Read more about the exceptions - Capital Gains Tax on Gifted Property.

We can refer you to a tax advisor to review your tax implications at competitive prices.

Need tax advice on your property transaction?

• Get up-to-date property tax advice on SDLT, CGT, IHT, Personal versus partnership versus company structure.
• Free 15-minute initial consultation with a qualified accountant from our panel of tax advisors.
• Ask your tax questions and get guidance on what you can do next.
• If there is some further accountancy work required, then you'll be quoted for this as a separate piece of work with no obligation to purchase.

Book with an advisor

What is the legal process for gifting property to your family?

We run through the legal process for each of the above routes to transfer house ownership to a family member or spouse.

• 1
  Sale and Purchase for Gifting a House

Whether the transaction is for full market value or under, if you are gifting property with a mortgage, you'll need to follow the normal sale and purchase process. Here are the key stages when selling property to family:

• Seller and buyer get independent solicitors
• Seller completes standard protocol forms such as fittings and contents forms
• Buyer gets their mortgage offer
• Buyer orders searches
• Exchange and completion

The conveyancing process will take the standard time to get to exchange because you are getting a mortgage and ordering conveyancing searches from the council. Crudely estimated at 4 to 8 weeks; however, if it is a leasehold, it will take longer as the seller needs to get the leasehold management pack.

We can handle the entire process, from conveyancing to arranging access for your surveys and ordering searches for you.

• 2
  Deed of Gift/Transfer By Way of Gift

The parties leaving the title are unrepresented unless they choose to get a solicitor, and the process is as follows:

• New owners get a solicitor to handle the transfer
• TR1 is drafted and sent to the Transferor (current owners) and Transferee (new owners)
• Current owners get their ID1 form verified by a solicitor and obtain independent legal advice regarding the Transfer.
• Completion takes place

This process for gifting a house is completed much quicker, usually 3 to 4 weeks. The longest part is getting the ID1 verified and getting legal advice on the transfer, especially if the current owner lives overseas. We can get your ID1 form verified, so please contact us if you need help.

• 3
  Transfer of Equity

Where one or more of the original owners will remain on the legal title, the transfer can occur as a transfer of equity. The party leaving the title is often unrepresented.

• New owners and remaining owner use the same solicitor
• TR1 is drafted and sent to the current and new owners
• Leaving owner gets their ID1 form verified by a solicitor
• Completion takes place

A Transfer of Equity takes a similar time to complete as a deed of gift; however, it can take longer if the property is leasehold or there is a mortgage that requires the lender's consent for adding children's names to house deeds/mortgage.