Gifting property to children? How to transfer home ownership

For most people, buying a house is the biggest purchase that they will make. However, there may come a point in your life when your circumstances change, and you feel you would like to transfer part of full ownership of your home to another family member.

You can either transfer some of the equity in your home or you can gift it to someone else entirely. It’s essential that you are aware of the risks involved so that you can make the right choice for you.

Parent child gifting property enquiry

See also:

What is a Transfer of Equity?

Adding someone to the deeds of a property while still retaining a share yourself is known as a transfer of equity.

Such transfers are common when a newly-married homeowner wants to add their spouse to the title deeds of their house. Conversely, a transfer of equity is common when a property-owning couple decides to separate.

Parents may also want to transfer equity in their home to their children to help minimise the impact of inheritance tax later down the line.

Financial considerations

Transferring equity is not without its costs - and it’s important to realise that the person taking on the equity may be required to pay stamp duty or capital gains tax on the transaction.

Transferring equity is not without its costs - and it’s important to realise that the person taking on the equity may be required to pay stamp duty or capital gains tax on the transaction.

If you’re taking on equity and a mortgage to a value of more than £125,000, then you’ll be required to pay stamp duty and tax on any equity over this threshold.

(NB: Temporary changes to stamp duty are currently in effect as part of the COVID-19 stamp duty holiday. Read more here.)

If you are transferring equity as a result of divorce or dissolution of a civil partnership, then you will not need to pay stamp duty, but may be liable to pay capital gains tax, depending on whether you have lived together during the tax year in which the transfer was made.

Is there any Stamp Duty Land Tax (SDLT) payable when gifting a property?

Sharing the equity

When considering sharing the equity in your home, you must also decide on the type of shared ownership you want. You and the person you are sharing with can either be:

Joint tenants

As joint tenants, you will each hold an equal share of 50% of the property, and if one person dies, then the property ownership automatically goes to the other partner - you cannot pass on ownership of the property in your will.

Tenants in common

Tenants in common, however, can own different percentage shares in the property, and if one person dies, the ownership does not automatically go to the other party. This is common for divorced couples sharing a property, and it means you can pass on your share of the property in your will to whomever you wish.

Gifting a property

Sometimes people choose to gift their entire home to a family member - this is known as a 'Transfer by Way of Gift', or a 'Deed of Gift'. Parents often choose to do this in a bid to reduce the amount of inheritance tax (IHT) their children will need to pay after they die.

Inheritance tax starts at a 40% and applies to the total value of an estate (including property) over the tax-free threshold of £325,000. If you gift a property to your child while you’re still alive, inheritance tax may be reduced.

If you die within 7 years of gifting a property, then your children will still have to pay inheritance tax, though if you die between 3 and 7 years, the amount of inheritance tax your children will have to pay becomes gradually lower. See:

Years between the date of gift and date of death Tax payable
less than 3 40%
3 to 4 32%
4 to 5 24%
5 to 6 16%
6 to 7 8%
7 or more 0%

Sce: gov.uk

What to think about before you start...

Married couples or civil partners may also choose to gift part of their property instead of transferring equity. In this case, as no money is involved in the transfer, you would not be charged stamp duty or capital gains tax.

What to think about before you start...

A number of things should be taken into account before you make the first steps to gift your home.

First of all, if you have a mortgage or debt secured on the property, then you will need to clear this before you are able to gift it to someone else.

It’s also important to think about your financial situation when it comes to potential insolvency. If you give your house away and go bankrupt within five years of the transfer, then the official receiver may have the power to claim the property back if it is felt that the transaction was deliberately undertaken in order to put the property out of reach of creditors.

You should also consider where you are going to live after you have gifted the property. You may continue to live in your home once you have transferred it, but to avoid tax implications, you must pay rent at the going market rate to the person you have transferred it to. If a tenancy agreement or similar arrangement is not in place, you will not retain any legal right to remain present in the property.

Ready to take the first steps?

Some transfers of equity can be simple and straightforward, while other cases can be incredibly complicated. Our panel of conveyancing solicitors can complete the whole process for you. The process is inexpensive and gives you complete peace of mind.

If you’re ready to make the first steps in transferring equity or gifting your home or would like further information or a fixed fee quote, please call us on 0800 612 7456 or get a transfer of equity quote online.

Chris Salmon, Director

About the author

Chris Salmon is a co-founder and Director of Quittance Legal Services. Chris has played key roles in the shaping and scaling of a number of legal services brands and is a regular commentator in the legal press.

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