If you’re considering gifting property to your children, or if you’re inheriting a house from your parents, then it’s reasonable to want to ensure that the transfer of property is done in as tax-friendly a way as possible.
Many people, understandably, consider whether it would be possible to put their house in their child’s name in order to avoid paying inheritance tax. This is a viable option in only a few circumstances, and there are strict guidelines as to how much you can gift your child and the nature of the gift itself.
If you want to avoid overpaying inheritance tax on the property, then you should consider all of the options available to you and your family, and our Wills and Inheritance Tax Planning Solicitors and Lawyers can review your estate portfolio and make sure it is organised advantageously to minimise or avoid the tax on gifts from parents.
If you’d like more specialist advice suited to your circumstances, you can speak to one of our solicitors and specialist lawyers in Ashford, Cranbrook and Hythe.
Please be aware that this blog is for informative purposes only and should not be taken as legal advice.
How much can you gift your children?
Whilst there is no definitive maximum amount that you can gift to your children, there are only a certain number of ways that you can give these gifts without it counting towards Inheritance tax (IHT), known as annual exceptions or exempted gifts. There are five main options for you to do this, these being:
- Annual exemptions, which allow you to give away up to £3,000 to your child or children in total.
- Wedding or Civil partnership gifts, which allow you to give £5,000 to a child and £2,500 to a grandchild or great-grandchild.
- Regular gifts out of income, which must be made from surplus income and cannot affect your standard of living. HMRC may request evidence of this, so you will need to keep documentation of any relevant transactions.
- Small gifts exceptions, which allow you to give up to £250 to an unlimited number of people each year so long as they don’t also benefit from your annual exemptions.
- Potentially Exempt Transfers (PETs), which are gifts that are of higher value than the above exceptions, and will need to be made 7 years before your passing under strict criteria to prove that you are no longer benefitting from the gifted asset.
Can I gift my house to my children?
Yes, if you own your home and do not have an outstanding mortgage, you are able to gift your house to your children. While gifting property to your children can be a useful way of reducing Inheritance Tax, it is important that the exchange is structured in the correct way.
Firstly, you’ll need to bear in mind that there is a seven-year rule in place, which means that if you gift the house to your children, the gift will only be exempt from Inheritance Tax if you survive seven years from the date of the gift. If you die before this seven-year limit, your property may still be subject to Inheritance Tax.
Secondly, after gifting the house, if you continue to live it or gain any benefits from it, then HMRC will determine that it still counts towards your estate as it is considered to be a “gift with reservation of benefit”. HMRC will not recognise a gift with a reservation of benefit, meaning that the property would be included in the estate when calculating the Inheritance Tax bill.
You can subvert this by paying market-rate rent to your children, demonstrating that you have legally transferred full ownership, and covering a share of the household bills.
How to leave your house to your child
You have three options for how you’d prefer to leave your house to your children, these being as a gift, in the Will, or as part of a trust. If your priority is avoiding excess inheritance tax or IHT altogether, then gifting your house is often the best choice. This is especially true if the property is valued above £500,000 (including residence nil rate band ) as it would otherwise exceed the inheritance tax threshold.
Can my children inherit my house tax-free?
If you are passing your estate to a direct descendant such as your children or grandchildren, then you can benefit from both the Nil-Rate Band (NRB) that has a threshold of £325,000, as well as an additional Residence Nil-Rate Band (RNRB), which gives you an additional £175,000. These two combine to mean that you can pass a total of £5000,000 tax-free onto your children, assuming you meet the RNRB criteria.
As discussed above, you can also potentially reduce Inheritance Tax by gifting it to your child during your lifetime, which could help you avoid IHT if you continue living for seven years after the gift and follow the “Potentially Exempt Transfer” rule.
Implications on Inheritance Tax following the Autumn 2024 budget
The Autumns 2024 budget will have significant changes to the UK Inheritance Tax (IHT) rules and guidelines, primarily, relative to the gifting of homes, the effects on the Nil-Rate Band Freeze, and reforms to Agricultural and Business Property Reliefs.
Firstly, the existing Nil-Rate band will stay the same until at least 2028, meaning that any estate that falls under £325,000 will still be available to inherit tax-free. This could be one way for you to leave your house to your children without incurring an Inheritance Tax bill.
Secondly, there are reformations to the agricultural and business property reliefs, which could affect you starting from the 6th of April 2026 if you own farmland or commercial property. If these assets fall under the threshold of £1 million in combined value, then they still enjoy 100% Inheritance Tax relief.
However, if they exceed the threshold, the relief drops to 50%. Furthermore, the government will also reduce the rate of business property relief available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges.
We have detailed the impact of the 2024 Autumn budget on Inheritance Tax in the following article.
Speak to our Wills and Inheritance Tax solicitors and lawyers today
It’s understandable to want to protect your wealth portfolio in all its forms, especially if your home is sentimental or tied to an agricultural or commercial venture. There are ways of gifting property to children that are more tax-friendly than others, so make sure that you are transferring the ownership of property from parent to child in an advantageous way.
We take great measures to be communicative and approachable to our elderly clients with a dedicated team of Wills, Probate, and Powers of Attorney Solicitors and specialist Lawyers for Older Clients, offering them the dedication that they deserve but sometimes do not receive.
If you’d like more specialist advice suited to your circumstances, you can speak to one of our solicitors or Lawyers in Ashford, Cranbrook and Hythe.