Can I gift my properties to my family?

Posted by Mark Lloyd, Property Master Academy on 5 August 2019 | Comments

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If you’re planning to gift a property to a member of your family, there are tax implications to consider.

Here we take a look at the main tax issues you’ll face if you decide to pass on a property to a relative.

gifting property

Inheritance tax (IHT)

You may wish to gift a property to one of your children to reduce the value of your estate for IHT reasons. This action is known as a ‘potentially exempt transfer’ PET.

However, if you die within seven years of making the transfer, the property is still deemed to be part of your estate value for IHT purposes. But if you live for seven years or more, there’s no IHT to pay on the value of the property.

But, if you remain living in a property that you gift, this is considered a ‘gift with reservation of benefit’. Because you’re keeping the right to benefit from the property (by living in it), on your death it will still form part of your estate, even if you live for more than seven years after gifting the property to your offspring.

Capital gains tax (CGT)

When it comes to transferring rental properties or a share in a property to a husband or wife, you won’t incur CGT on the transfer. However, if that transfer is made to a son or daughter, then it will be taxed as if it were an open market sale.

If you do transfer a property to your children, the tax payable on the transfer is generally calculated based on the value uplift between the date you purchased the property and the date of the gift. The person making the gift is the one that has to pay the CGT.

Transfer into a trust

Instead of gifting a property outright to your children, you can set up a trust to remove the property from your estate. The problem with this is that trust taxation of income can be high, with an upper rate of 45%.

The gift must be verified in writing, and the Land Registry entry has to be changed. There are also other tax issues that may apple on the transfer of an investment property, depending on the type of trust.

Stamp duty land tax (SDLT)

SDLT is only paid on the consideration given, not on the equity in the asset transferred. Therefore, the transfer is a gift, and there’s no consideration, so no stamp duty needs to be paid.

If there’s an outstanding mortgage on the property and the person your gifting it to takes over an existing mortgage, SDLT must be paid, if the value of the mortgage is over the SDLT threshold. If the person you gift it to already owns property, SDLT will apply at the surcharge rate, which is 3% above the normal rate for that band.

Points to consider before gifting property

Once you gift a property, you’re no longer the legal owner. In the case of disputes or divorces, you don’t have the option to change your mind later.

You may want to bear in mind various scenarios that could potentially occur and factor these into your decision making. It’s also a good idea to seek professional advice on tax and other financial issues that may arise.

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