Shall I give my house to my children now?

When it comes to passing on your assets, particularly your family home, the question of when is just as important as how. Many people ask: “Should I give my property to my children now rather than on my death?” It’s a big decision that requires careful thought, as there are significant legal, financial, and emotional considerations to weigh up.

In this blog, we’ll explore the pros and cons of gifting your property to your children while you’re still alive. We’ll also address the potential pitfalls and why professional advice is essential for making the right choice for your family.

The Pros of Gifting Your Property During Your Lifetime

• Potential Inheritance Tax (IHT) Savings: Gifting your property while you’re alive could reduce your estate’s value for IHT purposes, particularly if you survive for seven years after the gift. This could save your children thousands of pounds in tax.

BUT..... if you continue to live in the property....the 7 year clock does not start ticking until you move out!

• Helping Your Children Sooner: If your children need financial support now (e.g., to buy their own home or start a business), transferring your property could provide them with immediate assistance.

BUT... you home could be vulnerable to paying off their debts, settling a divorce or even affecting the amount of tax your children would pay in purchasing their own property.

• Avoiding Probate Delays: By transferring ownership during your lifetime, you may help your children avoid the lengthy probate process when you pass away.

BUT....this is dependant on the value of your property and the rest of your estate.  You may not need a grant of probate for your property but you may need a grant of probate anyway for other elements that make up your estate on your death: bank accounts, investments, pensions.

• Peace of Mind: Knowing your property is securely passed on can give you peace of mind, especially if you’ve clearly communicated your wishes and taken the necessary legal steps.

BUT...if you do not take professional advice, giving your house to your children could cause issues that you had not previously considered.

The Cons of Gifting Your Property Now

• Loss of Control: Once you transfer ownership, the property legally belongs to your children. This means you no longer have full control, which could lead to complications if family relationships change or if your child faces financial difficulties, divorce, or bankruptcy.

• Capital Gains Tax (CGT): If your children later sell the property and it’s not their primary residence, they may face CGT on the increase in value from the time of the gift to the sale.

• Deprivation of Assets for Care Fees: If you require care in the future, transferring your property could be seen as deliberate deprivation of assets, meaning the local authority may still count it when assessing your ability to pay for care.

• Unexpected Life Changes: Your circumstances—or your children’s—may change. For example, you might need to downsize, release equity, or move. Gifting the property could limit your financial flexibility.

• Inheritance Tax Rules on Gifts: While gifting the property could reduce IHT, this only applies if you survive seven years after the gift.  If you die within that period, the value of the gift may still be included in your estate for tax purposes under the “7-year rule.” 

• Loss of Residence Nil Rate Band Allowance (RNRB) and Gift with reservation of benefit: If you continue living in the property rent-free after gifting it, this could complicate matters. HMRC may view the arrangement as a “gift with reservation of benefit,” meaning the property remains part of your estate for IHT purposes, and you may also lose your extra Inheritance tax allowance (Residence Nil Rate Band Allowance) of up to £175k.

Alternatives to Gifting Your Property

If you’re hesitant to give your property to your children outright, there are alternative strategies that might better suit your goals:

• Set Up a Property Trust
  A property trust allows you to safeguard your home for future generations while retaining control during your lifetime. This can protect your property from the issues outlined above and ensure it’s passed on as you wish.

• Add Your Children as Co-Owners
  Rather than transferring full ownership, you could add your children as co-owners. This can ease the transfer process while maintaining some control.

• Life Interest Trust in Your Will
  A life interest trust allows you to grant your children ownership of the property after your death while ensuring you or your spouse can live there for the rest of your life.

• Gifting Cash or Other Assets
  If reducing IHT is your priority, consider gifting cash or other assets instead of the property. These can still qualify under the 7-year rule without the complications of transferring property.

Key Considerations Before Making a Decision

Before transferring your property, ask yourself the following questions:

• Will this affect my financial stability?
  Ensure you have enough resources for your own needs, including care costs, before making a gift.
• Do I trust my children to manage this responsibility?
  Family dynamics can change over time, so it’s vital to be confident in your decision.
• Have I consulted a professional?
  Complex rules around IHT, CGT, and deprivation of assets mean professional advice is essential. At Hexagon Life Planning Services in Ormskirk, we specialize in helping families navigate these tricky decisions.

Real-Life Example: Why Professional Advice Matters

One of our recent clients in Ormskirk wanted to transfer her home to her two children but had concerns about her future care needs. After consulting with us, we advised setting up a property trust instead, ensuring her home was protected while still meeting her children’s long-term goals.

This approach avoided the risk of deprivation of assets, allowed her to retain control, and ensured her children would inherit as planned.

Is Gifting Your Property the Right Choice?

The decision to gift your property now rather than on your death is deeply personal and depends on your circumstances. While there are potential benefits, the risks and complexities mean it’s not a one-size-fits-all solution.

At Hexagon Life Planning Services, we specialise in will writing and property trusts in Ormskirk and the surrounding areas. We’ll help you explore all your options and create a plan that works for you and your family.

Contact us today to book a consultation and start planning for your family’s future.