Inheritance tax rules for giving children a home before they die | Personal finance | Finance

This can be achieved either by purchasing property for them or by donating currently owned property, which could be rental property or even the family home. There is more than one reason why giving property to children through a deed may be an option to consider.

A deed of gift, sometimes called a transfer by way of gift, is a legal process by which a person or persons can be added to title to a property.

This means that no form of payment is made, whether in the form of money, transfer of assets, assumption of debts or in exchange for services.

The main reason for this is that a deed of gift can reduce inheritance tax liabilities.

A Deed of Gift is different from an Equity Transfer where at least one of the owners remains on title or a Consent, where ownership of property from a deceased person’s estate is transferred to the name of the new owner.

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If a debt is secured against the property, it generally must be paid before the property can be donated.

If a person passes on their home to their husband, wife or civil partner on their death, there is no inheritance tax to pay.

If they leave the house to someone else in their will, that counts towards the value of the estate.

If a person owns their home (or part of it), their tax exemption threshold can rise from £325,000 to £500,000 if they leave it to their children (including children adopted, foster or stepchildren) or grandchildren.


It also increases if their estate is worth less than £2million.

For someone planning to give their children their home, there is normally no inheritance tax to pay if they move out and live for another seven years.

However, if they want to continue living in the property even after they have sold it, they will have to pay rent to the new owner at the prevailing rate (for similar local rental properties).

They will also have to pay their share of the bills or live there for at least seven years.

People don’t need to pay rent to the new owners if they only gave away part of their property and the new owners continue to live in the property.

If a person dies within seven years of giving away all or part of their property, their house will be considered a gift and the seven-year rule will apply in this case.

Subject to verification, a Registered Transfer of Title Form (TR1) must be completed, signed and witnessed in order to transfer ownership to the children.

An application, using the AP1 form, must be made to the Land Registry in order to register the transfer.

The name(s) registered in the property register will then be replaced by the new owner(s).

On the other hand, parents can also gift property to their children by creating a will of life interest trust.

In this type of will, both parents will own a separate share (usually 50%) of the property.

If the spouse were to die, under a life interest trust will, their half would be placed in the trust which secures the property of their children indefinitely.

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