Inheritance Tax: can you gift your home to your children?

3rd December 2021

People’s homes are often their most valuable asset, and this is set to continue with rising house prices. As a result, the home can make up a significant proportion of a person’s estate when they die.

Gifting the family home during lifetime may seem like an attractive idea. This is particularly true of parents, who may want to pass their home to their children to reduce the inheritance tax (IHT) bill upon their deaths. However, care needs to be taken as there are complex rules relating to ‘gifts with reservation of benefit’ (GROB). These are designed to ensure that a person is not able to benefit from an asset after they have gifted it to someone else.

If parents continue to live in the family home after transferring it to their children, then the property will still be included in the parents’ estates for IHT purposes and any tax benefit from gifting the property is lost. Indeed, the tax position can be made worse.

However, there are ways in which parents can successfully gift their home to their children whilst continuing to occupy the property. For example:

  • Full market rent can be paid by the parents to the children. However, this needs to be fully negotiated and difficulties can arise as income tax needs to be paid on the rent. Along with this, parents may not have the means to pay a full market rent.
  • The children can continue living at the property with the parents. This would avoid the GROB rules if a share of the property was gifted and the children continued to share occupation. However, problems can arise if the children later decide to move out. HMRC may also query the percentage share that has been gifted.

Whether you can protect your home and pass it down the generations is likely to be a key consideration when succession planning. Taking professional advice will help to ensure that you understand the options and do not fall foul of the complex IHT rules.

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