As people get older, it’s natural to start thinking about how best to pass on assets to the next generation. For many, the family home is the most valuable asset they own and gifting it to children or other relatives can seem like a practical and generous decision.
However, while gifting your house during your lifetime might feel like a straightforward way to support loved ones or reduce future inheritance tax, it’s important to understand the risks involved. At Fiona Bruce Solicitors, we regularly advise clients on the legal and financial implications of lifetime gifts and the unintended consequences that can arise.
Here are some key considerations if you’re thinking of transferring ownership of your home.
1. You’ll Lose Legal Control of the Property
Once you transfer the title deeds to someone else, you no longer own your home. This means you cannot sell it, remortgage it, or make certain decisions about the property without the new owner’s involvement.
Even if the property is gifted to a trusted family member, things can change. They may face divorce, debt, bankruptcy, or even pass away, all of which can put your continued residence at risk. Without proper legal safeguards in place (such as a life interest or formal trust agreement), you could find yourself in a vulnerable position.
2. Risk of Care Fee Complications
A common reason people consider gifting their property is to reduce the potential cost of future care. However, local authorities in England are entitled to look back at your financial history when assessing eligibility for care support.
If they believe you gave away your home to avoid paying for care, this may be treated as “deliberate deprivation of assets.” The council can still treat the value of the house as part of your assets, and your family may be expected to contribute to care costs.
3. Inheritance Tax Implications When Gifting Your Home During Your Lifetime
Gifting a house does not automatically remove it from your estate for inheritance tax purposes. Under HMRC’s rules, if you continue to live in the property after gifting it and do not pay full market rent, the gift is treated as a “gift with reservation of benefit.” This means the house remains part of your taxable estate when you die, defeating the purpose of the gift unless you pay a full market rent for the house.
4. Potential for Family Disputes
Even in close families, significant gifts can lead to tensions, especially if the arrangement isn’t made transparently or fairly. Other heirs may feel disadvantaged, or there may be future disagreements over how the home is managed, maintained, or used.
5. No Automatic Right to Stay in Your Home
Without legal protections in place, you have no guaranteed right to remain in your home after gifting it. You may trust your children implicitly, but relationships and circumstances can change, and verbal agreements won’t offer you any legal protection if things go wrong.
6. Why Legal Advice Matters
We often speak with clients who have contacted us following casual conversations they have had with friends, relatives or neighbours. While these discussions may be well-meaning, they can be misleading or entirely wrong when applied to your specific situation.
Property law, inheritance tax, and care fee rules are complex, and they change over time. What worked for someone else may not apply to your circumstances, and relying on incorrect information could result in serious financial and/or legal consequences for you and your family.
Professional legal advice ensures that your choices are informed and tailored to your personal and financial position. It also means you can put proper legal structures in place to protect yourself and those you care about.
Get Expert Guidance from Fiona Bruce Solicitors Before Making a Property Gift
Gifting your home is a serious decision with long-term consequences. At Fiona Bruce Solicitors, we help clients explore all available options, from setting up trusts or life interests to revising wills or using other tax-efficient estate planning strategies.
Before making any decisions, we strongly recommend speaking with one of our experienced solicitors to ensure your wishes are respected and your future is secure. It is often also advisable to speak with an independent financial advisor before making any decisions.
If you’re considering gifting your home or would like to discuss your estate planning options, get in touch with our Private Client team today.
The contents of this post do not constitute legal advice and are provided for general information purposes only ■
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