The latest news and views from Gibson Lamb

The place for updates on financially significant world events; our views on market developments; and news about our approach to doing business, including our focus on sustainability.

Should you gift your family your home?

Should you gift your family your home?


Date published

It makes sense to manage your finances and estate to minimise your inheritance tax liability – better to keep it in the family where you can.

And you’re probably clear on the basics of inheritance tax (IHT): 40% on the value of estates worth more than £325,000 (or more than £500,000 if the family home is passed onto the children – there’s some small print on the extra allowance for larger estates) and some gifts made in advance become tax free at a sliding rate provided you survive for seven years. Have a read of an earlier blog we posted for more information on the seven-year rule.

These current IHT allowances are frozen until 2028 as it stands (who knows if a change of government in next year’s General Election would result in an earlier review). With property prices still at historically high levels, more families are going to be facing Inheritance Tax burdens than before – rising from 27,000 in 2020–2021 to an expected 47,000 by 2028.

That’s a nice surge in IHT revenues hitting government coffers (an all-time high of £1.7billion was gathered last year). It’s also a pretty strong incentive for families to consider ways to reduce their liabilities, including, perhaps, through gifting property to their family.

It’s certainly an option, and one that would have a significant impact on the size of your estate, but there are some elements to consider when looking at this approach.

Firstly, in order for the gift to become tax exempt after the seven years, you can’t pass your property on to your children in name only. Both the deeds and the keys need to be handed over and you need to move out.

Fine, so you downsize and your family moves into your property (although I’d argue not many can afford to move without selling the main home). But you want to spend quality time with your grandchildren and your children are keen to make the most of the grandparent babysitting service on offer.

Here’s where you need to be careful and make sure you get fully acquainted with the additional details behind the rules.

According to HMRC, anyone who has gifted their property to family but wants to make regular or longer overnight visits, must pay rent at a market rate or the tax exemption will be rejected. So, if you’re thinking of regularly staying over at weekends with your family, staying with them for more than one month in a year or house sitting when they’re away you might need to reconsider your approach.

According to a Freedom of Information request made by the Telegraph, more than 2,100 families have been caught out by these rules over the past five years, resulting in £700million of unexpected IHT. That’s more than one family a day (so clearly some folk can afford to move and not sell their family home!).

There are certain exemptions – if you’ve had medical treatment and temporarily move back in with your family you won’t be breaching the rules, same if you move in while your own house is being redecorated – but those regular sleepovers with your grandchildren might count against you.

So, what’s the answer? Well, our personalised approach to our clients means we consider the issue of IHT as it applies to your individual situation and can advise on steps to take that will work for you and your family. And if you do want to give your kids the house but still keep up with grandchildren, why not invite them round to yours?