It may not be the first question that springs to mind when it comes to property exchange, but in order to sign your home over to your children there are a few things to consider.
What to be aware of when it comes to gifting a property
First off, if you are a homeowner you are within your legal right to give the property to your children at any time in your life, even if you live in it at the time.
As people understand the importance of inheritance tax (IHT) implications, assets when it comes to care home fees, and reducing net worth the focus is efficient ‘estate planning’.
If you ‘gift’ your home to your children (or a relative), the process is classed as being exempt from taxation. The point of contention is that if you pass away within seven years, the property will transfer back into your estate for IHT requirements.
Correct at August 2018 the inheritance tax allowance of a total estate (including the home) is £450,000. Excess of this value will grant the government a 40% tax entitlement.
If you are still present and well after seven years have passed there will be no responsibility to pay IHT and your children will securely and officially own the property. This gifting does have its own consequences in the sense that you, as the original property owner, will have no rights to claim rental income or share any rental or sale proceeds, if you no longer remain resident in the property.
What if you do remain at the property?
If you stay living in the property, the act of signing your home over to your children would be considered as a ‘gift with reservation of benefit.’ Whilst this method will enable you to still benefit from the property, it will still remain part of your estate when you pass – even if it’s after seven years.
The way to avoid this is to pay ‘market rent’ to your children, but they will then be accountable to pay income tax on your rent.
A darker side to this is that you (and your partner) might be evicted by your child if disagreements arose or forced out if they decided to rent or sell the property. Divorce or bankruptcy may also have implications to the future of the property. Essentially, you gave away any rights to the property once gifted.
Capital gains tax is still applicable
If your child was not living in the property when it was transferred to their name but the increase in value is sufficient enough when they come to sell it, capital gains tax may be applicable.
Deliberate deprivation of assets
Local councils can view the gifting of a property to children as a deliberate decision to avoid the fees of residential care homes – know as “deliberate deprivation of assets“. This can be contested and if deemed plausible the property could be transferred back into your name.
Consider all facts before transferring a property to your child
With the ever-turbulent property market, latest interest rate rises and the general cost of living it can be difficult to obtain a step on the property ladder – even to maintain a steady foothold.
It’s important that you seek professional advice and carry out sufficient research in advance when it comes to property exchange.
As professional conveyancing solicitors we’re here to provide the advice you need and guide you with the options when it comes to signing a property over to your children.
Contact a representative of Anthony Stockton Solicitors or call us on 0330 055 3737 for a free quotation.