Gifting property to your children: What you need to know

Why gift property?

Parents typically consider gifting property for one or more of the following reasons:

• Inheritance tax (IHT) planning
• Helping children onto the property ladder
• Protecting family wealth across generations
• Simplifying their estate

While these objectives are understandable, the method and timing of the gift can significantly affect the outcome.

Inheritance Tax considerations

Gifting property is often viewed only through the lens of Inheritance Tax.

• A lifetime gift is usually treated as a Potentially Exempt Transfer (PET).
• If you survive seven years from the date of the gift, it will generally fall outside your estate for IHT purposes.
• If you die within seven years, the gift may still be taxed, although taper relief could reduce the liability.

However, a common pitfall for parents is that they are unaware of the “gift with reservation of benefit” rule.

• If you gift your home but continue to live in it without paying full market rent, HMRC may still treat the property as part of your estate for IHT purposes.
• This means the tax benefit of gifting could be lost entirely.

Capital Gains Tax (CGT)

Capital gains tax is another key consideration.

• If the property is your main residence, it is usually exempt from CGT under principal private residence relief.
• If it is a second home or investment property, gifting it is treated as a disposal at market value.
• This can trigger a CGT liability even though no money has changed hands.
• CGT is payable to HMRC within 60 days of the transfer which can be an unexpected or unconsidered outlay of savings to some clients.

Careful planning is essential to avoid unexpected tax bills.

Stamp Duty Land Tax (SDLT)

SDLT may also apply, depending on the circumstances.

• If your child takes on an existing mortgage as part of the transfer, this can be treated as “consideration.”
• This is of course assuming your mortgage lender is happy to transfer for the mortgage but may also insist on remortgaging on harsher terms for the child.
• SDLT may then be payable based on the value of the mortgage debt assumed.
• Again SDLT is payable on the transfer.

Loss of control and asset protection

Gifting property means giving up ownership—and with it, control.

You should consider:

• Relationship breakdowns: If your child divorces, the property could form part of a financial settlement simply meaning an asset which parents worked hard for disappears overnight to the former spouse. It could also put at risk parents continuing occupation of the property if it is their main property.
• Financial difficulties: The property may be exposed to creditors or bankruptcy claims.
• Family disputes: Unequal gifting between children can lead to future challenges.

Once the gift is made, it is usually irreversible.

Care fees and deprivation of assets

Local authorities can scrutinise gifts made before entering care.

• If a property is gifted with the intention of avoiding care fees, it may be treated as deliberate deprivation of assets.
• The local authority can assess you as if you still owned the property.

There is no fixed time limit—intent is the key factor.

Alternatives to an outright gift

In many cases, a full transfer of ownership may not be the most appropriate solution. Alternatives include:

• Gifting a share of the property rather than the whole
• Using a trust structure to retain some control
• Loan arrangements instead of outright gifts
• Wills and estate planning to pass property on death rather than during lifetime

Each option carries different tax and legal implications.

Practical and legal steps

If you decide to proceed, the process typically involves:

• Obtaining a market valuation
• Taking tax advice before transfer
• Instructing a solicitor to handle the transfer
• Notifying mortgage lenders (if applicable)
• Updating the Land Registry

Proper documentation is essential to ensure the gift is legally effective and tax-compliant.

Final thoughts

Gifting property to your children can be beneficial, but it is rarely a simple or risk-free decision. Tax rules are complex, and the wider implications—particularly around control and future security—are often underestimated.

Taking tailored legal and tax advice at an early stage can help ensure that your intentions are achieved without unintended consequences.

If you are considering gifting property or reviewing your estate planning, our private client team would be happy to advise on the most suitable approach for your circumstances. Please contact us on 020 8290 0440.