Gifting Your House to Children UK

Gifting your house to your children is a generous and often emotionally significant decision. It can also be a strategic one, particularly if you are considering inheritance planning or simply wish to support your children by giving them a financial head start. In the UK, it is entirely possible to gift your home during your lifetime, but it must be done correctly to ensure you do not create unexpected tax liabilities or legal complications. Understanding the full implications of such a gift is essential for any homeowner considering passing property to the next generation.

This article explains whether you can gift your house to your children, how the process works, and the key tax and legal issues you need to consider. It is written for homeowners and families exploring options around estate planning, wealth transfer or lifetime gifts, and includes current UK guidance on property law and tax implications.

What Does It Mean to Gift a House?

Gifting your house to your children involves transferring the legal ownership of the property from your name into theirs without receiving payment in return. This is known as a lifetime gift and it is legally binding once registered with HM Land Registry. The house no longer belongs to you and the recipients – your children – gain full control of it.

The gift can be made outright, where your children become the sole owners, or with conditions attached, such as you continuing to live in the property. These conditions must be carefully structured to avoid falling foul of tax rules, particularly those related to Inheritance Tax.

Who Can Make the Gift and Who Can Receive It?

Any homeowner with full legal title can gift their property to another person, including their children. You do not need to be mortgage-free, but if there is an existing mortgage, you must obtain the lender’s consent before the transfer can take place. Your children must be over 18 to legally own property in their own name. If they are underage, the house would need to be held in trust until they reach legal adulthood.

Joint property owners can each gift their share, but both must agree to the transfer. It is essential to seek legal advice if the property is jointly owned with a spouse or civil partner and you are only transferring part of the interest.

Legal Process for Gifting a House

Gifting a house is a formal legal process. You will need a solicitor to prepare a Deed of Gift or Transfer Deed and to handle the application to HM Land Registry. The Land Registry must be notified of the new ownership using forms TR1 and AP1. The solicitor will also carry out checks to ensure there are no restrictions, debts, or legal claims attached to the property that might prevent the transfer.

If you continue living in the house after gifting it, and do not pay market rent to your children, the gift will be classified as a gift with reservation of benefit. This means that even though you no longer own the house on paper, HMRC will treat it as part of your estate when calculating Inheritance Tax.

You should also consider what rights you retain after the gift. Once the property is transferred, your children could sell it, mortgage it, or evict you unless formal occupancy rights are established through a separate legal agreement.

Tax Implications: Inheritance and Capital Gains Tax

The most significant tax considerations when gifting a home to your children are Inheritance Tax (IHT) and Capital Gains Tax (CGT). If you survive for seven years after making the gift, and do not continue living in the house without paying market rent, the value of the house is removed from your estate for IHT purposes. This is known as a potentially exempt transfer.

However, if you pass away within seven years, the house may be subject to IHT, depending on the value of your estate and whether the gift qualifies for taper relief. If the gift is a gift with reservation – meaning you retain a benefit by living there rent-free – the full value of the property will be counted back into your estate, regardless of when you gifted it.

CGT may apply if the property is not your main residence. If you are gifting a second home or investment property, any gain in value since it was first acquired is taxable at either 18 percent or 28 percent, depending on your income level. This tax is due when the gift is made, not when the recipient sells the property.

Stamp Duty and Other Financial Considerations

In most cases, gifting a property without any exchange of money does not trigger Stamp Duty Land Tax (SDLT). However, if the property is subject to an outstanding mortgage that your children agree to take on, the value of the outstanding debt is considered for SDLT purposes. If it exceeds the minimum threshold, tax will be payable at the prevailing rates.

It is also important to consider the financial responsibilities that come with the gift. Your children will become responsible for council tax, insurance, maintenance and any associated legal or mortgage costs. If they are joint owners, disagreements could arise over use, sale or rental of the property. These potential complications should be discussed openly and planned for in writing.

Risks and Potential Pitfalls

While gifting your house can be a meaningful way to pass on assets, it is not without risk. If your children encounter financial difficulty, divorce, or bankruptcy, the house could be lost to creditors or divided in legal settlements. If you later fall out with your children, you have no legal right to reverse the gift unless the agreement was made under duress or fraud.

Some people attempt to gift their house to avoid care home fees, but local authorities are alert to this. If they believe the gift was made to deliberately reduce your assets, they may disregard the transfer when assessing your ability to pay for care. This is known as deprivation of assets and can result in the council treating you as though you still owned the home.

There is also the emotional and psychological impact to consider. While giving the house may bring peace of mind now, it can lead to tensions later, particularly if expectations between parents and children are not aligned.

Planning and Protecting Your Interests

If you are considering gifting your house to your children, you should obtain legal and financial advice at the earliest stage. A solicitor can ensure the transfer is correctly executed and advise on how to protect your rights through formal occupancy agreements or trusts. A financial adviser or tax specialist can help you model the Inheritance Tax and Capital Gains Tax outcomes and explore alternative solutions if necessary.

It may also be wise to consider other estate planning tools, such as making a will, setting up a trust, or leaving the property in your estate with a letter of wishes. These approaches may offer greater flexibility while still providing financial support to your children.

Case Example

In a recent case in Derbyshire, a widow gifted her £350,000 home to her two children but continued living there without paying rent. Five years later, she passed away. Although she believed the gift had removed the house from her estate, HMRC treated it as a gift with reservation and applied Inheritance Tax accordingly. Had she paid market rent or moved out, the gift would likely have been exempt. With professional advice, the family could have avoided a substantial tax bill.

Conclusion

Gifting your house to your children is entirely possible in the UK, but it must be approached with caution and a clear understanding of the tax, legal and financial consequences. While the gesture may offer emotional and practical benefits, it can also expose you and your children to risk if not handled correctly. By seeking legal advice, planning thoroughly, and documenting all terms clearly, you can make a gift that benefits your family while safeguarding your interests and complying with UK tax law.