Your property is likely to be the biggest financial asset owned in your lifetime. It is also an asset which – ordinarily – holds a significant amount of sentimental value within a family. It is therefore wise to consider how you wish to deal with your property, as part of your estate.
Most people, when considering the matter of their estate will simply want to leave any property to their children after they die. Traditionally this is dealt with via a clause in your will.
However, to offer full peace of mind that your home is being inherited as you wish, your property can be transferred to your children during your lifetime.
What about inheritance tax?
It is impossible to discuss the transfer of a property for the purposes of inheritance without considering the tax implications.
According to the UK House Price Index for 2017 – as published by the government – the average price of a residential property is currently £218,255.00. With house prices in the UK continuing to increase, it is likely that the current threshold for paying inheritance tax on an estate – which currently stands at £325,000.00 – will be exceeded by the estates many home owners.
Gifting your property in your lifetime, rather than after you die, will mean the total value of your estate is much lower, having removed what is in most cases the largest asset in any Inheritance Tax calculation.
The only catch is that the property must be gifted in time.
In time? So what is the deadline?
If you wish to gift your property to your children, to avoid the tax implications, you must do so seven years prior to your death. For most of us, it is impossible to know when that may be. It is therefore recommended that you take steps to gift your property to your children as soon as possible.
Can I still live in my property once I have gifted it?
The short answer is yes. However you will need to pay rent to your children if you still want to live in the property. By gifting your property to your children, they effectively become your landlord. As long as you pay rent which is market rate for the property, your home will not count towards your estate when you die.
Paying rent to your children might seem odd to a parent. However, if you plan on leaving your estate to your children in any event, then this may be best thought of as money they would have eventually received regardless.
Are there any other rules to stick to?
There are further rules attached to gifting your property to your children and it is important that these are all followed.
The easiest way to comply with the rules is to gift your property without any conditions, or ‘strings attached’. So, for example, you cannot gift your property on the proviso that you continue to reside rent free, as this will be a ‘gift with reservation of benefit’ and the property would fall within your estate as if it had never been gifted at all.
It is also important to note that your property must be mortgage free to gift. Your lender will not take kindly to you giving away property that is not 100% owned by you!
Taking the right steps
A property is a huge asset to gift and it is of the upmost importance that it is done correctly, to protect both you and your children. The process can easily go wrong if not administered by a professional.
Before making any decisions on your property, you should speak to a qualified legal expert.
Make sure that any solicitor you appoint has the relevant experience in helping families arrange for their home to be inherited and looked after as they so wish. Getting the right advice on how best to handle your property will mean the right procedures are followed and make sure it is gifted legally and properly, with minimal upheaval for you and your family.
About the author
Jill Rushton is a Wills and probate specialist for Stephensons Solicitors. She is a Court appointed Deputy and acts on a number of matters for clients suffering from issues affecting their capacity.Last modified: August 22, 2017