Should I put my property into my children's names?

Posted on April 17, 2024

Should I put my property into my children's names?

Transferring your property into the names of the children is a common idea for people looking to mitigate the inheritance tax which may be due after they pass away. However, it is not as straightforward as it sounds and there are many pitfalls which could mean that inheritance tax is still payable, even if your house is no longer in your name at the time you die.

Proposed gift of the property.

If you wish to gift a share or all of your property to a child who does not live with you, unless you pay that child a full market rent, it is likely that the value of the property would still be considered to be part of your estate for inheritance tax purposes, as you would retain the benefit of the property by continuing to live there.

If you have a child who lives with you and stays living with you until you pass away, it may be possible to gift up to half of the property to that child and for that share to then fall outside of your estate for inheritance tax purposes. The gift would be considered a potentially exempt transfer that you would need to survive 7 years in order to ensure that the gift is not taken into account for inheritance tax purposes. Taper relief could apply after 3 years, depending on the value of the share transferred.

If you do not survive the full 7 year period, it is still possible that it could be a benefit in terms of the inheritance tax position. This is because the share of the property that you retain could be discontinued by up to 15% when the property is valued for inheritance tax purposes after you pass away. This is to reflect the fact that your child also owns a share of the property. It could therefore decrease the value of your estate by more than just half of your home, however this 15% discount is discretionary and would not apply if you own the property as joint tenants with your child.

Practical implications.

In addition to looking at the inheritance tax position, there are other things to take into account. There are always reasons for caution about making gifts of your home, including:

1. Anti-avoidance legislation: The government looks at gifts to consider whether they were made specifically to avoid tax and can reverse the gift if they think you have deliberately deprived yourself of assets in order to avoid tax.

2. Financial difficulties: If your child was made bankrupt, the property would be considered part of their resources and could be lost to creditors.

3. Divorce: If your child divorces, the property could be subject to a divorce settlement.

4. Loss of security: If your child decided to sell the property you could be left homeless.

5. Capital Gains Tax: The transfer would be a disposal for CGT purpose and could mean there is tax to pay.

You may consider that not all of these cautionary notes apply and if you would like to discuss this idea further, please feel free to contact us and we would be happy to help.