Longridge: 01772 783314 | Garstang: 01995 602129 | Lancaster: 01524 581306 
 
Longridge: 01772 783 314 
Garstang: 01995 602 129 
Lancaster: 01524 581 306 
A Property cut-out, with a set of keys and a contract
It’s not an uncommon question. In fact, lots of our local solicitors for Wills’ clients ask the same question (well, the same question, in different words): Can I give my house to my children to avoid paying Inheritance Tax? 
 
Well, a short answer is yes (hurrah!), theoretically, you can. However, our team of solicitors in Preston would warn that you probably shouldn’t: there can be some very serious consequences which you should consider fully before making your decision. 
 
It’s easy for everyone to see why this seems like a good idea: you can maximise your Estate, and reduce the Inheritance Tax that your family may have to pay, whilst ensuring that your loved ones have a permanent home or property in the future. 
 
But before you give the go-ahead to the transfer: STOP. Consider the implications of ‘gifting’ your property: read our solicitor in Preston’s blog, and contact our team for a full discussion first. 
Consequence #1 
 
You will need to pay full market rent to your children 
 
If you decide not to pay full market rent, HMRC will most likely argue that your gift is not valid, as you’ve retained the full benefit of the property – i.e. you still live there and they don’t. This type of gift is also referred to as a Gift with a Reservation of Benefit. This means that, regardless of when the gift of your property was made to your children, Inheritance Tax would still be payable on the full amount. 
 
Consequence #2 
 
Your children may be liable for additional tax 
 
New rules have been introduced in relation to owning property, meaning that if you gift your property to them, and they then decide to purchase their own property, they will most likely have to pay an additional amount of Stamp Duty Land Tax, as they will be considered to own a second home. This additional amount could be 3% of the property purchase price, on top of what they will already have to pay. 
 
In addition, if they don’t live in the property and they need to sell it, they may be liable for Capital Gains Tax on the increase in value, if any. 
 
Consequence #3 
 
If your children divorce or are made bankrupt, the property could be taken into account 
 
Sadly, you never know what your children will face, even if you don’t want to consider the future. If your children are getting divorced, your property may be taken into account for any financial settlement, and their former could be entitled to part – or all – of it. Likewise, if your children are made bankrupt, the property may be classed as a valuable asset and could be sold to pay off their debts. 
 
Consequences #4 
 
Your children could predecease you 
 
Again, another thing that no one wants to consider, but it does sadly occur sometimes. However, if they did, the property would (or their share of it) would form part of their estate, not pass automatically back to you. This would mean that your daughter or son (in law) could co-own your property, or even own it outright. They may decide that they want to sell it: if you don’t own any of the property, you may have no rights. 
 
Consequences #5 
 
Local Authorities may not fund your care, if required 
 
The local authority could argue that you have ‘gifted’ your home to avoid paying care home fees, also referred to as ‘Deliberate Deprivation of Assets’. They could, subsequently, decide not to fund any of your care, and you may be left with no other funding options. 
 
As our team of local solicitors for Wills would explain, deciding to gift your house to your children is not an easy decision to make, and there, as you can see, are some serious negatives. Have a chat with our team , by contacting wills@mglegal.co.uk, or at your local office, to find out what alternative options may be open to you. 
 
MG Legal – Your Local Solicitors 
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