As parents, we all want to give the best to our children and one way to do that is by gifting property to children. However, gifting property to children can be a complex process, especially in the UK, where there are many legal and tax implications to consider. In this blog, we will explore the topic of gifting property to children in the UK and provide some expert insights on the matter.

Firstly, it is essential to understand that gifting property to children is a significant decision that should not be taken lightly. According to Tim Adams, CEO of estate planning company Tim Adams, “Gifting property can be a great way to pass on assets to the next generation, but it is essential to ensure that it is the right decision for you and your family.”

There are several reasons why you might consider gifting property to your children. For example, you may want to help your children get a foothold on the property ladder, or you may wish to reduce the value of your estate for inheritance tax purposes. However, it is crucial to seek professional advice before making any decisions, as there are many factors to consider, including the impact on your own finances and potential disputes among family members.

When gifting property to children, there are several legal and tax implications to consider. For example, you may need to pay Capital Gains Tax (CGT) if the property has increased in value since you purchased it. According to Adam Home, CEO of online estate agent Adam Home, “CGT is payable on any increase in the value of the property from the date of acquisition to the date of transfer, so it is essential to seek professional advice to determine how much tax you will need to pay.”

If you are quite elderly then gifting an investment property to children may be a mistake if your life expectancy isn’t very long. The reason for this is because you would have to pay Capital Gains Tax on the gift and subsequently Inheritance Tax if you were to die within seven years of the gift. As CGT is not payable on death this means you would have paid taxation twice unnecessarily.

Gifting a buy-to-let property to children could also be a mistake if you needed to retain the rental income. However, it is possible to gift property to children and retain the rental income by way of a legal deed.

If you were to gift your main residence to your children and continue living in it rent free then it would be classed as a gift with reservation meaning that the full value of the property would be assessed to Inheritance Tax on your death or the last of your deaths if you are a married couple or civil partners.

Another issue to consider is the potential impact on your own finances. Gifting property to children can be a significant financial commitment, and it is essential to ensure that you have enough money to support yourself in the future. According to Sarah Coles, personal finance analyst at Hargreaves Lansdown, “It’s crucial to consider the potential impact on your own finances, especially if you need to fund your retirement or pay for long-term care.”

One option to mitigate the impact on your own finances is to gift the property gradually over time, rather than in one lump sum. This approach can help you to maintain control over the property while also reducing your estate’s value for Inheritance Tax purposes. According to Dan Garrett, CEO of estate planning company Farewill, “By gifting the property over time, you can maintain a degree of control over the property while also reducing the value of your estate, which can help to reduce the amount of Inheritance Tax that your family will need to pay.” If the property is your main residence it will only escape Inheritance Tax if your children grant you a lease on commercial terms after the gift.

In conclusion, gifting property to children can be a great way to pass on assets to the next generation, but it is essential to seek professional advice before making any decisions. There are many legal and tax implications to consider, and it is crucial to ensure that you have enough money to support yourself in the future. By taking a gradual approach and seeking expert advice, you can ensure that the process is as smooth and stress-free as possible.

Remember that when it comes to gifting property to children, it is always better to be safe than sorry. As Tim Adams, CEO of estate planning company Tim Adams, says, “Seeking professional advice is the best way to ensure that you make the right decisions for you and your family.” You know it makes sense.*

*RISK WARNING

The Financial Conduct Authority do not regulate tax or estate planning. The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.

Tony Byrne

Chartered and Certified Financial Planner

Managing Director of Wealth and Tax Management

If you are looking for expert guidance in Financial Planning contact Wealth and Tax Management on 01908 523740 or email wealth@wealthandtax.co.uk