Gifting the family home – The risks

December 11, 2023

While many people consider gifting their family home to children or other relatives during their lifetime, it is important to understand that gifting the family home whilst you are still living there may have significant risks and consequences that should be considered, and legal advice should be sought before taking any action.

Here are some key points to consider:

Inheritance Tax (IHT) –If you gift your property away whilst you are still living there, the gift could then be a “gift with reservation of benefit” and the value of your property will still be included in your estate for IHT purposes.

Capital Gains Tax – Capital Gains Tax is not paid on your main residence, however, if your beneficiaries do not reside in your property and decide to sell it in the future, an increase in the property value may create a liability to Capital Gains Tax.

Deprivation of Asset -A gift of the family home to avoid paying care costs may be seen by the Local Authority as a deprivation of asset in order to obtain a future benefit (i.e. to avoid paying for care).   If the Local Authority finds that the family home has been gifted intentionally to avoid care costs, the value of the family home may still be included in your financial assessment, and you may still be required to pay for your care.   Unlike the 7-year Inheritance Tax rule, there is no expiration limit for the deprivation of an asset.

Ownership and control over the property –  By gifting your family home to your children, they become the legal owners meaning they would have complete control over it.  They could choose to sell the property, take out a mortgage over it or allow other people to live there.  

The value of your property would also be included in your children’s own estate and financial assessment so, for example, if your child or children divorce, become bankrupt, or die before you, their ex-spouse, trustee in bankruptcy, or the beneficiaries of their own estates may become entitled to your family home.

There are several implications that should be considered with estate planning and legal advice should be sought in order to make an informed decision and avoid legal and financial pitfalls.

For further advice, please contact one of our Solicitors on 0121 705 7571.

Shola Parry
Trainee Solicitor – Wills & Probate Department

This article is for general information purposes only. It does not constitute technical, financial, legal advice or any other type of professional advice and is no substitute for specific advice based on your individual circumstances. We do not accept responsibility or liability for any actions taken based on the information in this article. For more information, please click here.