Gifting Property

Transferring assets to loved ones as a gift can be a convenient and effective way of providing for your family’s future without incurring a significant Inheritance Tax (IHT) charge in the event of your passing. However, the law around this process can often feel complex.

As such, those looking to gift a property or other assets should always seek legal guidance from expert solicitors, who can talk you through the legal terms and conditions to consider, and help you make tax planning decisions that maximise the benefits you are able to pass on to your loved ones.

At JMW Solicitors, our wills, trusts and estate planning team has the expertise and experience to help deal with all aspects of gifting. Call us today on 0345 872 6666, or complete our online enquiry form to request a call back at your convenience.

How JMW Can Help

JMW has one of the most respected wills, trusts and estate planning teams in the sector, with a strong understanding of the legal issues and a commitment to providing you with honest advice that places your best interests at heart.

Our team can advise you on all aspects of gifting, including tax-free allowances and exemptions, charitable gifting, gift allowance limits and whether the use of a trust or a corporate structure might offer additional benefits for providing gifts to family members. By seeking our advice, you will be able to come to educated decisions about your estate planning.

We have been recognised in the prestigious Legal 500 and Chambers and Partners guides on numerous occasions, with Chambers praising us for our “communicative and enthusiastic approach” and our dedication to offering “practical solutions to [our] clients’ legal needs, producing the highest-quality results”.

By discussing your needs with JMW, you can get legal advice on gifting that aligns with industry best practice. Our expertise is such that our solicitors are often asked to give seminars on wills, trusts, Inheritance Tax and estate planning, and several of our lawyers are also members of the highly-respected Society of Trust and Estate Practitioners (STEP) and Lifetime Lawyers (formerly Solicitors for the Elderly or SFE).

Meet Our Team of Wills Solicitors

Our team offers expert guidance on gifting as part of your estate planning, to enable you to make tax-efficient transfers to loved ones during your lifetime. The right approach to gifting can minimise the need to pay Inheritance Tax on your estate, and our advice on the tax implications can enable you to pass your estate to your loved ones efficiently.

Can You Avoid Paying Tax by Gifting Property?

A gift of property or other high value assets can reduce Inheritance Tax exposure, provided the gift is structured properly and the donor (the person making the gift) survives long enough. Anything gifted to a loved one in the seven years prior to your death will count towards your estate value for Inheritance Tax purposes, although gifts from longer ago may incur less IHT than more recent ones.

If property was gifted more than seven years before you die, and your estate falls below the Inheritance Tax threshold as a result, it may enable you to avoid this particular tax. This is one reason why gifts form a large part of Inheritance Tax planning, as careful understanding of the tax treatment based on your personal circumstances can lead to significant savings. However, a gift can lead you to incur Capital Gains Tax or other liabilities, so this does not mean that you can avoid all tax simply by gifting property in England or Wales.

Inheritance Tax

A gift of property is usually a potentially exempt transfer for IHT purposes. The seven year rule means that if the donor survives for seven years following the gift, it will fall outside the estate. If the donor dies within seven years, the gift may be brought back into the IHT calculation, but sometimes at a lower rate thanks to taper relief. However, any gifts made within the three years before you die will be taxed at the full IHT rate.

If a parent gifts the family home to their child but continues to live there without paying rent, or otherwise still benefits from it, HMRC can treat the property as a gift with reservation. In these cases, the property must be included as part of the donor’s estate for IHT. A common way to avoid this is for the donor to pay a full market rent after the gift, but this means that the recipient may need to pay income tax, which results in complex legal implications and tax treatment. Speak to a solicitor for advice on your individual circumstances, as it may be possible to structure a gift so that the value of the property does not contribute to your estate.

Capital Gains Tax (CGT)

For CGT, a gift is still treated as a disposal. HMRC generally treats the donor as disposing of the property at full market value, even if no money changes hands. This is especially important for gifts to family or other “connected persons”. It means that if someone gifts a buy-to-let, second home, inherited property, land, a rental property or a property that has not always been their main residence, they may have CGT to pay based on any profit they have made between acquiring the asset and gifting it. The tax rate could be as high as 24% on these profits.

On the other hand, if you are gifting a property that is your only or main residence to your children or other family members, it may qualify for private residence relief, which can reduce or eliminate the need to pay CGT.

If the recipient later sells the property, they will also incur CGT on the profit unless it is their primary residence. The CGT base cost is generally the market value at the date they received the gift.

Stamp Duty Land Tax (SDLT)

SDLT is usually based on what is called “chargeable consideration”. A pure gift with no mortgage and no payment may have no SDLT, but if the recipient takes over a mortgage, or gives anything of value, that can count as consideration and may therefore incur taxes.

If the recipient already owns another dwelling, higher or additional property rates may be incurred if there is chargeable consideration. It is important when estate planning to determine whether the SDLT or other tax implications will outweigh the reduced Inheritance Tax liability before gifting property with this purpose in mind.

Q

What qualifies as a gift in legal terms?

A

In the eyes of the law, a gift needs to be given freely and without conditions, meaning you cannot continue to derive any benefit from the asset. For example, signing a property over to family members while continuing to live there rent-free would not be considered a legitimate gift, and would be included as part of your estate for Inheritance Tax.

Q

What type of gifts are exempt from Inheritance Tax?

A

Inheritance Tax exemptions for gifts generally fall into two main categories; firstly, there is no tax to pay on any gifts made by a person up to the value of £3,000 in a tax year. Anything above that amount will be added back into your estate if you do not survive seven years after the gift was given; if the value of gifts in a given year totals less than £3,000, the leftover exemption can be carried over into the next year (but only the next year).

Secondly, small gifts up to the value of £250 given to any individual are also exempt from Inheritance Tax, even if you do not survive seven years after the gifting. This means you can give £250 to as many people as you want in one year without incurring extra cost, with the exception of recipients who have already received a gift worth some or all of the £3,000 annual exemption.

Other potential exemptions include:

• Wedding gifts - these need to be made before the wedding, with the permitted valuation threshold varying depending on the recipient’s relationship to the giver
• Gifts to help with living costs - these can potentially be exempt from Inheritance Tax when given to an ex-spouse, an elderly dependent or a child under 18 or in full-time education
• Gifts from surplus income - these need to be well-documented and given regularly
• Political party gifts - Inheritance Tax-free gifts can be given to some political parties under certain conditions

Q

Can you gift a property to a family member?

A

Transferring ownership of a property to a family member as a gift with no money exchanging hands requires the completion of several forms. Provided that you live for at least seven years after making the gift, it could mean the property is no longer considered part of your estate when Inheritance Tax is calculated.

However, you cannot continue living in the property after gifting it unless you are willing to pay rent at the going rate, or else it will still be seen as part of your estate. Moreover, you may need to pay Capital Gains Tax on the property if it has not been your main residence for the entire time you have owned it, as well as SDLT if there is an outstanding mortgage on the property.

Due to the legal complexity involved in transferring a property as a gift, it is advisable to contact a solicitor to understand the full implications.

Q

How do gifts to charity affect Inheritance Tax?

A

Gifts left to charity are completely free of Inheritance Tax, whether they are made during your lifetime or upon your death. Additionally, if you leave at least 10% of your estate to charity in your will, the rate at which Inheritance Tax is charged on the rest of your estate will be reduced from 40% to 36%.