Considerations before transferring ownership of property to your children

A recent case brought to light the dangers of transferring your property into the name of your child/ children, whereby, in short, the claimant signed over her home to her daughter for inheritance tax reasons and now her daughter is seeking to evict her from the house.

Although never a simple process, transferring ownership of property to children is a more common wish than you may think – but it is important to be fully advised regarding the consequences in advance.

Firstly, there are gifting rules, whereby you as the parent need to live for seven years after gifting the property to your child/ children to ensure that the gift is not liable for potential inheritance tax on your death. There are ‘taper rules’ around this whereby the longer you live from the date of gift, the less is added back into your estate for potential inheritance tax, but it can still make a difference to the amount of tax potentially payable on death. See our Complete guide to lifetime gifts in the UK.

There is also the consideration of whether you would trust the child/ children to treat the property with the respect it deserves and that they would not end up in financial trouble where the property could be looked at by creditors seeking repayment. The reality is that once the property is signed over to the child/ children, it is theirs and you no longer have any control over it legally – so there’s nothing to stop them using the property to repay money owed elsewhere or using it as a security to release monies for themselves.

Also, once the property ownership is legally signed over, you cannot call on its value in the future to pay for things you may need money for, such as anything from holidays to grocery shopping. It is important to consider fully how your financial position will look once you no longer own the property, do you have money to get by, enjoy yourself and have something set aside for a rainy day?

What will your living arrangements be when the property is signed over? This is something that you need to consider at length before making any decision – as if you’re not staying in the property this will likely be your biggest cost to consider moving forward. Do you plan to move into residential care, and can you afford the fees that would come with this decision? Do you plan to downsize and move into a smaller property on your own? This is not a decision you will want to consider lightly, so take time to weigh up your options, and how much money you will need, before progressing with signing any property over to the child/ children.

If the plan is that you will stay in the property even after it is signed over to your child/ children, it would be sensible to have this agreed via a formal document. Although it might not be the easiest conversation to have, getting a formal agreement will ensure you do not fall foul of the circumstances explained at the start of this article where the claimant was evicted from the house by her child. If you’re planning to sign the property over to your child/ children, the likelihood is that you trust them to look after your best interests, but if the relationship with them were to break down then having a formal agreement regarding your living circumstances could save you a lot of hassle. There is also legislation in place to make sure that HMRC do not lose out on potential tax if you give away your largest asset. You will need to take advice on whether you should be paying your child/ children a commercial rent if you give the property to them but stay there.

We often say that the tax tail should not wag the dog and all the above considerations point to this being a big decision that must be thought through carefully. Your security and peace of mind should remain high on your priority list even when you’re looking to do something to support your child/ children like this.