Should I Transfer Ownership of my Property to My Children?
Transferring ownership of your property to your children can be a good way to reduce Inheritance Tax (IHT). However, it’s important to carefully think about the legal, financial, and personal factors before making this decision.
Process:
The usual method for transferring property to your child is through a process known as transfer of equity. This means you can either give them full ownership of the property or just a part of it. If your child is under 18, they can’t legally own the property outright, but you can set up a bare trust. This allows them to have a beneficial interest in the property until they turn 18.
Factors to Consider:
Staying in the Property: If you plan to continue living in the property after giving it to your child, you might need to pay them rent at market rates to show that you no longer benefit from owning the property. Keep in mind, your child will have to pay income tax on the rent they receive. Also, consider the possibility that your child could ask you to leave if they face issues like divorce or debt.
Trusts:
If you set up a trust, you’ll need to be aware of your responsibilities. In a bare trust, you don’t have control over the property and act as a caretaker. However, you have the duty to manage the property and decide how to use any income or capital in the best interest of your child.
Tax Implications:
Stamp Duty Land Tax (SDLT): This may apply if there’s a mortgage on the property, if any payment is made, or if your child owns another property.
Capital Gains Tax (CGT):
You might owe CGT on any increase in the property’s value since you bought it. This is based on the market value at the time of transfer compared to the original purchase price.
Inheritance Tax (IHT):
If you gift the whole property and live for more than seven years afterwards, the transfer might be free from IHT. If you pass away within seven years, the tax rate will depend on how many years have passed since the gift. The IHT threshold is £325,000, with tax charged at 40% above this amount
Do You Need a Solicitor?
While transferring your property to your children could lower your family’s tax burden, it means giving up control and facing potential risks. Getting legal and financial advice is crucial to make an informed and safe decision. A solicitor can guide you through the process, help avoid mistakes, and protect you and your family’s interests now and in the future.
Lauren Jones
Assistant Solicitor in Residential Property at Girlings Solicitors