Can I gift property to my children as part of my Inheritance Tax planning strategy?
Yes, gifting property to children is a useful way to reduce your exposure to Inheritance Tax but first consider the implications.
First, there are legal and administrative costs involved in transferring the title and there may be tax to pay.
You can make an outright gift of the property to the child to reduce the value of your estate. This is treated as a ‘potentially exempt transfer’ for Inheritance Tax (IHT) purposes. If you die within seven years of this, it remains within your estate for IHT purposes. Currently, IHT is charged at 40% on any part of an estate worth more than £325,000.
If this happens and there is Inheritance Tax payable, it is charged at 40% on gifts given in the three years before you die. Gifts made three to seven years before you die are taxed on a sliding scale. Seven years after making the gift, there is no Inheritance Tax payable.
Capital Gains Tax (CGT) is payable when transferring a property which is not a ‘principal primary residence’ which includes buy-to-let properties. So you may have to pay CGT on any increase in value between the original purchase price of the property and its value when transferred. CGT is not payable if you are gifting your own home which is your principal residence.
For overseas residents, CGT is limited to gains made since April 2015 when CGT for non-residents was introduced.
There is no Stamp Duty Land Tax (SDLT) payable when you transfer a property to children unless you are also transferring a loan. If so, SDLT is payable on the value of the loan.
Remember that when you gift a property to your children, it becomes their asset and you are no longer the legal owner. It is down to them what they do with it. Also, if they get divorced, their ex-spouse could make a claim against their estate, including the property.
So consider all the pros and cons before making your decision.
Benham & Reeves Residential Lettings