Gifting your family home to your children can have its advantages: potentially mitigating inheritance tax being just one. But as with anything, there are also disadvantages too. What if your adult child gets divorced from their spouse, or dies? Perhaps they’re experiencing financial difficulties or later fall out with you. If you’ve gifted your home to them, you could struggle to maintain the roof over your head.

If you are thinking of gifting your family home but are unsure if it is the right decision for you, then contact us today on 01224 581581. Alternatively, complete our online enquiry form and a member of our team will contact you. 

Trusts 

A potential solution is to think about putting your home in a trust which protects both you and your home from all those risks mentioned above. Although it should be said, putting a home in trust has the immediate potential for inheritance tax (IHT) liabilities. You will also need to safeguard capital gains tax reliefs connected to a later sale of the property.

Setting up a trust requires specialist advice because of complex compliance and reporting responsibilities to HM Revenue & Customs (HMRC). You should consider who you want to be appointed as trustees because, once the trust is set up, they will exercise overall control of the house. Additionally, you need to think about who you will nominate as your beneficiaries whilst also taking your own needs and requirements into account. Your nominated beneficiaries will ultimately inherit the family home after you die.

Tax considerations - Inheritance tax 

The risks involved in gifting your home don’t simply stop at family considerations. Making a gift of your home can have tax consequences when you die for the nil rate IHT band allowance regarding the main residence (currently £500,000 if inherited by children or grandchildren). Any such gift demands a thorough examination of the property’s title deeds, the legal documents transferring the title and registration forms, facilitating the change of legal title.

If you live for 7 years following the making of a gift, it will fall out of your estate and, therefore, will not be subject to IHT. Until 7 years have elapsed, the gift will be treated as a ‘potentially exempt transfer’ (PET). This means that should you die within 7 years of making the gift, it will be treated as part of your estate and therefore incur IHT liabilities.

If the PET is higher than the IHT allowance of £325,000, the rate of tax charged decreases in line with the number of years since the gift was made. This is called ‘taper relief’. In theory, most gifts don’t incur tax because the IHT allowance is apportioned to gifts made within 7 years of the donor’s death before the rest of their estate.

Tax considerations - Capital Gains Tax 

There are also potential Capital Gains Tax (CGT) considerations. Let’s say you own a buy-to-let property and you want to gift it to your daughter; it is unlikely you will be able to do so without incurring CGT charges. This is because HMRC treats gifts of property in a similar way to that of a sale, therefore the tax will be the same as if you had sold it on the open market.

In simple terms, CGT is charged on any profits you make when certain assets are sold. But after that, things get more complex because the rate you will pay and any allowances you are entitled to will depend on what you are selling and how much profit is made.

Contact our Wills, Trusts and Estate Planning Solicitors in Aberdeen and Stonehaven today 

At James & George Collie, we are a full service law firm. Our teams work together to help you plan what is best for you, your family and your estate now and into the future. 

For more information, contact us online or call us on 01224 581581.