Can I gift my home to my children now to save inheritance tax?
Keeping it in the family
For many families their house is their most substantial asset, therefore inheritance tax is a worry for some. Families want to be confident of preserving the family home for the children and to avoid having to sell the house to pay inheritance tax after their deaths. This is particularly an issue if there are children of any age still living at home. If you are thinking of gifting or transferring your home to your children, there are a number of issues to consider before taking any steps.
As the most significant asset for many families, the family home is as a result often the focus of tax planning against the background of rules introduced by successive governments. These rules are aimed at preventing tax payers giving away their home to avoid inheritance tax while continuing to live there rent free. There are rules known as “gifts with reservation of benefit” which would catch a gift of the house to your children unless you paid a market rent.
Gifts would be treated as a potentially exempt transfer for inheritance tax purposes. This means that gifts are not taxable so long as you live for a further 7 years.
Stamp duty, land tax and capital gains tax may not apply to a gift of the family home but this depends upon the circumstances so it is wise to check and take advice.
While the introduction of the transferable nil rate band in 2007 and the residential nil rate band in 2017 take many family homes out of tax liability completely, care must still be taken in approaching this complex area.
Some advisers advocate asset protection trusts or similar arrangements. These should be treated with caution as they may not be effective now or at the time of your death.
In conclusion, such a gift would not be effective to save tax. There may be other options available to you to achieve your aims.