A brief overview of the legal considerations when transferring property to your child.
Transferring ownership of property from a parent to a child in the UK can be achieved through several methods. Each method has its own important legal and financial implications. Here’s a summary.
1. Outright Gift
A parent can simply transfer ownership of the property to their child as a gift. This involves transferring the title of the property at the Land Registry.
However, Capital Gains Tax (CGT) on the transfer may arise if the property is not the parent’s main residence.
Inheritance Tax (IHT) is also a consideration, though if the parent survives for seven years after gifting the property, the value of the property will be excluded from their estate for IHT purposes.
You should also consider Stamp Duty Land Tax (SDLT) to be paid. Seek legal advice on this where the child takes on a mortgage or gives money in return.
2. Selling the Property to the Child
The parent can sell the property to the child, either at market value or at a reduced rate.
CGT applies if the property has increased in value since the parent acquired it and it’s not the parent’s main residence.
Stamp Duty Land Tax should also be considered where the child pays for the property or takes on a mortgage.
3. Transferring Through a Trust
A parent can place the property in a trust for the benefit of the child. This enables the parent to retain some control over the property while ensuring it passes to the child at a later stage.
IHT may apply, depending on the value of the property and the type of trust.
CGT may be triggered when assets are transferred into or out of the trust.
SDLT may also apply when property is transferred into or out of the trust.
4. Transfer on Death via a Will
A parent can leave the property to their child in their will.
The property will be part of the parent’s estate for IHT purposes if it exceeds the nil-rate band.
No CGT is due at the time of inheritance, but if the child later sells the property, CGT will apply on any increase in value from the time of inheritance.
5. Joint Ownership (Transfer to Child)
A parent can transfer the property into joint ownership with the child, either as joint tenants or tenants in common.
CGT may apply to the share of the property transferred.
Inheritance Tax may also arise as well as SDLT, depending on the mortgage or financial arrangements.
Other Considerations:
If the parent is seeking to avoid paying care home fees, gifting the property could be seen as “deprivation of assets,” which may affect eligibility for government assistance.
Given the complexities around tax, legal implications, and family circumstances, it’s essential that you obtain professional legal and financial advice before transferring property to your child.
