Many people consider giving their home to their children during their lifetime to avoid Inheritance Tax. While understandable, this strategy is fraught with pitfalls and can actually make things worse.
The 'gift with reservation of benefit' rules mean that if you give away your home but continue to live in it, it's still treated as part of your estate for IHT purposes. You would need to pay a full market rent to the new owners — your children — for the gift to be effective.
Even if you do move out, the seven-year rule applies. If you die within seven years of making the gift, it may still be subject to IHT (with taper relief applying after three years).
There can also be Capital Gains Tax (CGT) implications for your children when they later sell the property. If it's not their main residence, they'll pay CGT on any increase in value from the date of the gift.
In 2026, Stamp Duty Land Tax (SDLT) may also be payable if the property has an outstanding mortgage. The transfer is treated as a purchase for the amount of the mortgage.
There's also the risk factor. Once you've given the property away, you have no legal right to live there. If your children divorce, go bankrupt, or simply change their minds, you could lose your home.
Better alternatives include Property Trusts (which protect your share while allowing you to stay), making use of the Residence Nil-Rate Band, and careful IHT planning through your Will. Contact Castle Family Legal for advice.
