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Can I gift my house to my children?

The most common way to transfer property to your children is through gifting it. This is usually done to ensure they will not have to pay inheritance tax when you die.

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There are several routes you can go down if you want to transfer property to family members. The types of transfer you can do and the different taxes you might have to pay all depend on a variety of things.

Explore your main options, alongside the positives and risks of each.

Transfer of Equity: Transferring property to your spouse/civil partner

You may want to transfer ownership of a property if you are newly married and want your spouse on the title deeds. You can do this through a transfer of equity. This is where a share of equity is transferred to one or multiple people, but the original owner stays on the title deeds. You’ll need a Conveyancing Solicitor to complete the legal requirements for you in a transfer of equity. These include Land Registry forms and charges. They'll also be able to advise you on the best options for you during your transfer. You might also need to consult with your mortgage lender if you have a mortgage on your property. They will need to check the mortgage will still be paid with an extra person coming onto the title deeds. If you are the party taking on the equity (and possibly part of a mortgage), you may have to pay stamp duty. You’ll have to pay stamp duty if the equity and mortgage you take on is over £125,000. This is the current government threshold. You’ll then have to pay tax on any of the equity over this threshold. If you want to find out more about the steps and fees involved in a transfer of equity, have a look at our article on Transfer of Equity Costs.

Divorce or dissolution and transfer of equity

You will not have to pay stamp duty on a transfer of equity if you are divorcing or dissolving a civil partnership. Capital Gains Tax after separation is slightly more complicated. If you’ve lived together during the tax year that you transferred the asset, you won't have to pay Capital Gains Tax. The tax year in the UK runs from the 6th April to the 5th April of the next year. You’ll need to get a valuation of the asset on the date of the transfer to work out the tax you have to pay.

Transferring property to your children

You might want to transfer a share of your property to a child for a few reasons, such as giving them a foot-up on the property ladder. You might also want your children to avoid Inheritance Tax, but want to remain living in the property. A transfer of equity might be the right option for you if this is the case. The transfer of equity process the same as with a spouse. Your children will have to pay stamp duty on the share they receive if the equity/mortgage is over the £125,000 threshold.

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Joint tenants or tenants in common?

When owning a property with someone else, you can either be joint tenants or tenants in common. Joint tenants have equal rights to the property, and the property automatically goes to the other owner(s) if you die. This is a common option used for married couples. In a transfer of equity, you’ll need to transfer 50% of the property to your partner. Tenants in common means you can own different shares of the property. The property doesn’t automatically go to the other owners if you die. You can, however, pass on your share of the property in your will. This could be used if you wanted your child on the title deeds but did not want them to be joint tenants with you. You can also switch between being tenants in common and joint tenants. This is common during a divorce, where you may want to become tenants in common rather than joint tenants.

Gifting

Gifting property to your children

The most common way to transfer property to your children is through gifting it. This is usually done to ensure they will not have to pay inheritance tax when you die. Inheritance tax starts at 40%. It applies to any property you own over £325,000. You and your partner can combine your assets so it starts at £650,000. Parents with property over this value want their child to receive as much of it as possible. As long as you live for another 7 years after you’ve gifted your property and don't live in it or benefit from as if you were still the primary householder, your children can reduce or avoid inheritance tax. For every passing year, up to seven years, the amount of tax tapers off.

Find out more in our guide 'Will-writing and inheritance tax'.

If you die between 3 and 7 years after gifting your property, your children will still have to pay tax, but not the full 40%. This is known as ‘tapered relief’. After you have gifted the property, you will not be able to live there rent-free. If you do, your property will not be exempt from Inheritance Tax. Instead, you must pay rent in line with the average rate in the area.

Gifting property to a spouse/civil partner

If spouses and civil partners want to transfer assets between them, it often makes sense to do this as an outright gift. For example, a husband might own property but want to protect his wife's right to it. He would be able to transfer 50% of the property as a gift. As it is a gift, unlike a transfer of equity, the husband would not receive any money from this transfer.

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You will not be charged Capital Gains Tax or Stamp Duty on this gift, as it is between a married couple or a civil partnership.

Risks of Gifting

To Children

Gifting or transferring property to your children can mean you are no longer the homeowner. This means you don't have any rights to the property. Usually this is not a problem, but in theory, you could be in a vulnerable position. Sometimes you may fall out with your family, and your children have the legal right to evict you. Alternatively, your children may have fallen out with their spouse. This could mean the property is sold against your family’s wishes if it becomes part of a divorce settlement.

To your spouse

Gifting outright means no money changes hands. The spouse gifting part of a property will lose the share they have gifted. This means they won’t have financial control over that share. Usually, in a marriage, this will not matter, as money and property are often in practice shared equally. However, you may want to think whether this is the right choice for you. For example, you may have to amend you and your partner’s Wills to ensure that property goes back to you if your spouse was to die.

Gifting and Capital Gains Tax

Capital Gains Tax (CGT) is a tax you pay on the ‘profit’ you make on the property. The profit is the difference between the purchase price and the value of the property when gifted. For basic-rate taxpayers, it is charged at 18%. For higher-rate taxpayers, it is charged at 28%. If you are gifting a property which isn’t your main residence, you may face a Capital Gains Tax (CGT). This applies to the property you have bought to rent out, and holiday homes. It could also apply if your child or partner is not living at the property when you gift it to them, but the property increases in value by the time they sell it. There is a tax allowance, after which you will have to pay CGT. For 2022-23 this is £12,300. It is advisable that you consult or hire a Conveyancing Solicitor if you are worried about the consequences of gifting your property. Compare quotes for legal experts to help you transfer equity to a family member.

thelawsuperstore.co.uk - Transferring property ownership to family members | The Law Superstore

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