At some point, a property owner may want to gift property to their children. This is a very common practice, although it is important to thoroughly research how this should be done. Not only are there different ways to do it depending on your circumstances, but there may also be tax implications involved.
Increasing numbers of children receive help from parents to get on the property ladder, so it is little surprise that gifting property is a common occurrence. Figures show parents supported 49% of all first time buyer housing transactions in 2021.
There are several different ways to gift property.
Transfer of equity
Under a transfer of equity, the legal ownership of a property changes hands but the original owner remains on the title deeds. This is a common way to gift property to a child or other family member. In order to transfer equity to your child, you will need the services of a transfer of equity solicitor, who will be able to handle all the documentation. If you are searching for a transfer of equity solicitor, you can contact Parachute Law or a similar firm for more details.
When transferring equity, you need to decide whether to become 50/50 joint tenants or tenants in common, which allows each party to hold different shares in the property. This is the most common choice when looking to gift property to a child. Transferring equity to your child may have Inheritance Tax implications- it can reduce the value of the parent’s estate, as only estates valued at £325,000 or more incur Inheritance Tax. But there is also a seven-year rule in place, meaning children only avoid Inheritance Tax if you live for seven years after gifting the property.
Deed of gift
A deed of gift formally gifts property to another person without anything demanded in return. Transferring property as a gift has to be done via a deed and must be witnessed. The gift is unconditional and the donor (i.e. the parent) retains no interest in the gift. Again, Inheritance Tax has to be paid if the donor dies within seven years of the deed and the parent’s estate is above the threshold for taxation. In this case, Capital Gains Tax would not apply to the child receiving the gift, only the parent gifting it. This only applies if the property is not the parent’s main home.
Sale and purchase
Another way to gift your child property is by selling it to them, potentially at a reduced or under market value price. If a property is being gifted with a mortgage, the normal sale and purchase process should be followed and fees such as stamp duty apply. Both parties need independent solicitors and the usual conveyancing processes will take place.
A solicitor will be able to help you work out the best way to gift property to your child and highlight any tax implications involved in the method selected.