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Tax implications of transferring property to children

by Scott Brown | Mar 14, 2014
  • Taxpayers are entitled to transfer ownership of assets to the value of up to £325,000 without paying inheritance tax (IHT), while assets worth more than that are subject to a whopping 40% IHT.
    Green monopoly house sitting on screws

    Many people transfer their properties over to their children in order to reduce their tax liability. But is this a wise move? It could be a way to reduce tax liability, but also comes with certain risks that should be taken into consideration.

    How is the transfer done?

    Gifting: The simplest option is to gift a property directly to a child or children, so that the value of the parent’s estate is reduced. The gift is given outright, so the original owner gives up any rights to share in proceeds or receive any kind of rental income from the property.

    Part gifting: This is where only a part of the property is gifted, leaving the original owner as a joint owner. Of course, part of the property also remains in the parent’s estate. 


    It’s important to understand the risks of transferring property into a child’s name.

    Loss of control: Whatever your reasons for transferring the property, once you do so – the house is no longer yours, meaning the new owner can paint it purple, rent it out to whoever they want or sell it – without your permission. If your child goes bankrupt, the property will form part of their estate and could be lost with absolutely no legal recourse available to you.

    Capital Gains Tax: It is important that you take capital gains tax into consideration. This is charged when an asset classed as an investment goes up in value. If your children are not living in your property when you transfer it into their names it will be subject to capital gains tax when they want to sell it. This means that if the property increases in value after being transferred over to your children, they may then be liable to pay tax on it.

    Income tax: Should the child rent out the property – either to the parent or someone else, they would be receiving an income from the property and would need to declare this to Inland Revenue.

    Avoidance Inspectors: One of the common reasons that people transfer property to their children is to avoid having to sell their home to pay for care fees. But avoidance inspectors are going through financial records to find evidence of attempts to conceal wealth and shelter the property from the council care calculation. They can reverse the transfer of ownership so that it is included in the test for funding or demand the money be paid from somewhere, putting the owner in a tricky predicament.

    If the child receiving the rental income is under the age of 18, the income will deemed to be taxable income for the parent and may not therefore reduce the income tax liability.

    Any change in ownership needs to be registered with the Land Registry.

    If you're looking for more information on transferring of property and the tax implications involved, please visit our Accounting section.

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