At WBW Solicitors, we are often asked if a person can gift away their property to their children, or friends? If so, what are the potential repercussions? Strictly speaking, there is nothing to stop you from the making the gift but before you do so you need to be aware of the numerous risks involved.
So, what are the potential risks? These could include, but are not limited to, the following:
Loss of Ownership and Security
The obvious risk is that you would no longer own your home meaning that you would have very little security going forward. If you continued to occupy the property after the gift has been made, the following risks may arise:
- Your children could decide to sell the property potentially rendering you homeless.
- Your children could became bankrupt with the property having to be sold to settle outstanding debts.
- Your child could go through a divorce with their spouse, with the property that you gifted forming part of the financial settlement.
- Your children could decide to evict you.
One would hope that this situation never arises but you need to be aware that one of these scenarios could become a reality.
Local Authority and Care Fee Considerations
The less obvious risk is an argument that could be raised by the Local Authority of “Deliberate Deprivation of Assets” for care fees purposes. This is where the Local Authority will consider you have deliberately deprived yourself of an asset (the property) so as to avoid having to pay care fees. If the Local Authority are successful in evidencing this, they have several courses of action available to them to include continuing to charge you (as if the deprivation hadn’t occurred), they could charge the person/s to whom the property was transferred (e.g. your children), and lastly, they could pursue action through the County Court.
Impact on Means-Tested Benefits
The gift of a property to your child could also lead to the property still being treated as part of your estate which, in turn, could affect your entitlement to means-tested benefits.
Possible Tax Consequences
- Gift with Reservation of Benefit (“GROB”) – If you continued to live in the property, rent-free, after gifting it away, this could be considered a GROB for Inheritance Tax purposes. This means, potentially, that the value of the property gifted could still remain in your estate for inheritance tax purposes. This could be avoided if you were able to pay full market rent but advice should always be sought on your individual circumstances.
- Potentially Exempt Transfers – Inheritance Tax will not be due on the value of any gift made if you survive 7 years after making the gift. If you do not survive 7 years, inheritance tax will be payable on a sliding scale.
- Capital Gains Tax (CGT) – Gifting away property (other than to your spouse or civil partner) could result in Capital Gains Tax (“CGT”) becoming payable on any profit derived from the gift. Whilst you may not have to pay CGT, those receiving the gift may have to.
- Stamp Duty Land Tax (SDLT)- If there is a mortgage, or charge, attached to the property at the point of gifting, Stamp Duty Land Tax may be payable.
- Pre-Owned Assets rules (“POAT”) – These complex tax rules are anti-avoidance rules which impose an income tax charge in certain circumstances where a person has successfully removed an asset from their estate for inheritance tax purposes, but where they continue to derive a benefit from it. For example, this may arise if you were to sell your house and gift the proceeds to your child, who later purchases a property in which you can reside. Whilst there may be not be a GROB, you may need to pay income tax on the annual benefit that you are deemed to receive as a result.
Family disputes
If certain family members feel that they have not been treated fairly, will the gift result in a claim against your estate after you pass away?
How can we help?
As set out above, while there is nothing to stop you from making a gift of your property, it is strongly advisable to seek legal and financial advice beforehand. The implications of such a decision can be far-reaching, affecting not only you but also those receiving the gift.
At WBW Solicitors, our Private Client and Community Care teams, along with our WBW Chartered Financial Planners, have extensive experience in all the areas discussed. We can guide you through the process and ensure that you receive the right advice tailored to your circumstances.
For more information, please contact:
Natalie Bowers, Senior Associate, Private Client Team (for advice on Deliberate Deprivation of Assets)
📧 nataliebowers@wbw.co.uk | 📞 01626 202353
Private Client Team (for advice on inheritance tax, gifts with reservation of benefit, and estate planning)
📧 lawyer@wbw.co.uk | 📞 01626 202404
WBW Chartered Financial Planners (for financial planning and tax implications)
📧 enquiries@wbwcfp.co.uk | 📞 01626 242500
