Introduction

Gifting residential property, such as your home or a second property, is sometimes considered as part of estate planning, particularly where individuals are looking to reduce inheritance tax (IHT) or pass assets on during their lifetime.

A common assumption is that simply giving your home to a family member will remove it from your estate for IHT purposes. In reality, the position is much more complex. In many cases, the intended tax benefit is not achieved, and the arrangement can create additional legal, tax and personal risks.

Gifting property is a significant step. It can affect your financial security, your control over the property, and your exposure to tax and third-party risks. The outcome depends heavily on your individual circumstances, and it is important to take legal advice before proceeding.

In this article, we explain what gifting residential property involves, how it works in practice, and the key issues to be aware of under the law in England and Wales.

What is gifting residential property?

Gifting residential property means transferring ownership of a property to another person, usually a family member, during your lifetime without receiving full market value in return.

This could include:

• transferring your home to your children
• adding someone to the legal title as a joint owner
• giving away a second home or buy-to-let property

From an estate planning perspective, the aim is often to reduce the value of your estate for inheritance tax purposes. However, simply giving a property away does not automatically remove it from your estate for tax purposes.

How does it work in practice?

Gifting a property is a formal legal process. It typically involves:

• arranging a formal valuation of the property
• transferring legal title through a Land Registry application
• obtaining independent legal advice for all parties
• considering mortgage lender consent if the property is mortgaged
• reviewing the tax implications before the transfer takes place
• in some cases, completion of tax returns after the transfer

There are several key tax considerations:

Inheritance tax (IHT)

• A lifetime gift is usually treated as a “potentially exempt transfer” (PET)
• If you survive for seven years after making the PET, it may fall outside your estate for IHT purposes
• If you die within seven years, some or all of the PET may still be considered within your estate for IHT purposes

Capital gains tax (CGT)

• HMRC treats the gift as if it were a disposal at market value
• If the property is not your main residence, gifting it may trigger a CGT liability
• If a liability arises, there will be a requirement to complete a CGT return

Stamp duty land tax (SDLT)

• SDLT may apply if the recipient takes on a mortgage or gives consideration

These rules can interact in complex ways, and professional advice is usually required to understand the overall position.

Common pitfalls or misunderstandings

Gifting property is often seen as a straightforward way to reduce tax, but there are several important risks and misconceptions.

“I can give my home away and still live in it tax-free”
If you continue to live in a property after gifting it, without paying a full market rent, it may be treated as a “gift with reservation of benefit”.

• In this situation, the property is usually still included in your estate for IHT purposes
• This means the intended tax saving may not be achieved

Loss of control and exposure to third-party risks
Once gifted, the property legally belongs to the recipient. This means:

• they can sell or mortgage it
• it may form part of their assets in divorce, bankruptcy, death or incapacity
• your security of occupation may depend on their circumstances

For example, if you were to give your home to your child and they later divorced, the property could be taken into account in the financial settlement and potentially transferred, in whole or in part, to their former spouse.

Care fees and deprivation of assets
Local authorities may assess whether a gift was made deliberately to reduce assets for care fee purposes.

• If so, the property may still be treated as part of your assets for assessment purposes
• There is no fixed time limit, and decisions by local authorities may depend on your intentions at the time

Joint ownership is not a simple workaround
Adding someone to the title does not avoid these issues. It may still be treated as a gift and can create further tax and legal complexity.

Key points to remember

• Gifting residential property is a significant legal and financial step
• It does not automatically remove the property from your estate for inheritance tax
• Continuing to live in a gifted property can negate any intended tax advantages
• You may lose control of the property and expose it to risks such as divorce or creditors
• Tax consequences, including CGT and SDLT, should always be considered
• Local Authorities may still take the asset into account for care fee assessments
• The outcome depends on your personal circumstances, so advice should be taken before proceeding

How we can help

We can advise you on whether gifting property is appropriate as part of your wider estate planning.

Contact our private client team now – we can assist with:

• reviewing your estate and inheritance tax position
• advising on lifetime gifts and potential risks
• preparing or updating your Will
• structuring your affairs to reflect your wishes while protecting your interests

Taking advice at an early stage can help you avoid unintended consequences and ensure your plans are effective.