Should You Put Your Home In Your Child’s Name?
This content is for information and inspirational purposes only. It should not be taken as financial advice. To receive regulated, tailored financial advice regarding your situation and goals, please consult an independent financial adviser (IFA) here in Grantham or in your area.
If you are both a homeowner and a parent, it might have crossed your mind to put your property in your child’s name (or children) at some point. There are many justifications for this, including wanting to give offspring a helping hand and reduce inheritance tax due on your estate when you eventually pass on.
After all, isn’t it commonly known that gifts made over 7 years ago are exempt from inheritance tax? When gifting your home whilst continuing to live in it, the answer is: “Unfortunately not!” (See below for more details).
Some of the above justifications have some logic, yet we at Castlegate would urge you to be cautious. It is important not to make any big decisions on this matter without first obtaining independent financial advice. Remember, although you are permitted to gift your home to children at any point, this does not mean it is necessarily a good idea.
Ownership & the Gifting of Property
Bear in mind that once you transfer your property into your child’s name, you cease to be the legal owner. Whilst you might have a good relationship with your child, it is important to be aware that the future is uncertain. If you later become at loggerheads, your place in the family home could become insecure. In some very sad, extreme cases of family disputes, some people have even been forced to leave the property by their child.
This scenario might sound implausible in your case. However, be aware that other circumstances could transpire that put your residence at risk. For instance, if your child enters significant debt or even bankruptcy in the future, they may need to sell the house, forcing you to move out. Another possibility is that your child gets divorced in the future, and their ex-spouse claims against their estate (which would include your abode).
Fees & Residential Care
Most of us will likely need some form of professional care during later life; whether temporary, residential care or indefinite 24/7 nursing care in a care home.
The fees for care are expensive, sometimes costing as much as £55,000 per year in parts of England. In 2023-24, the rules state that you will probably need to pay your care fees if your capital exceeds £23,250, which includes the value of your home if it is not exempt (minus any mortgage or loan).
This situation leads many people to consider gifting their homes to their children in an attempt to avoid the possibility of paying such high care fees out of their capital. However, remember that if you do this, your local council will likely consider your actions a “deliberate deprivation of assets.” In that case, ownership of your home would be treated as yours.
Capital Gains Tax (CGT)
One area which people often overlook when considering gifting property is capital gains tax (CGT), which is levied on an “investment asset” if it goes up in value. Usually, when you sell your own home, and it has increased in value, you do not have to pay CGT. However, if you transfer ownership of your property to your children and it increases in value, your children will likely need to pay CGT when they sell it.
It’s important to remember that CGT is also relevant if you are considering gifting your child a second home (or holiday home). If you transfer ownership to your child in this situation, then you might need to pay CGT on any increased property value between the time you first started owning the property and its date of sale.
Gifts with Reservation of Benefit (Inheritance Tax)
If you have heard that gifts made from your estate become exempt from inheritance tax (IHT) after 7 years, then you have generally heard correctly. However, when it comes to gifting your family home, you need to tread very carefully.
If you transfer your home to your child’s name but continue to live there, then this isn’t a “gift” in the traditional sense. The law recognises this and, therefore, it is likely to be classed as a “gift with reservation of benefit.” This means that you have legally transferred ownership of the property to your child but have reserved the right (“benefit”) to keep living there.
In 2023-24, the present tax laws stipulate that if you do this, then the property will still be treated as part of your estate for IHT purposes upon your passing. This remains so even if you survive the gift by 7 years.
If you want to get around this, then you could consider paying your child rent while you live in the property. However, you cannot pay this at a reduced “family rate”. To stay out of the clutches of IHT, you will need to ensure the rent reflects a similar going rate for comparable properties in your local area. Remember, your child would then have to declare this rental income to HMRC, which means that it is likely to increase their Income Tax bill.
Final Thoughts
It is entirely legitimate to want to reduce IHT on your estate, give your children a helping hand, and prepare for the potential costs of care in later life. However, we at Castlegate would argue that, in most cases, there are other, more sensible routes to achieve these goals without resorting to transferring ownership of your home to a child.
If you would like to discuss your plans, estate or financial situation with us to gain clarity and peace of mind on these matters, then we invite you to book a no-commitment consultation at our expense with a member of our team here at Castlegate, today.
