Minimising Taxes and Maximising Control for Your Children’s Future
At Harpur Wealth Management, we understand the significance of passing on your legacy and ensuring a prosperous future for your loved ones. Many of the clients we work with are looking for a way to offer children financial stability and security, and the gift of property can help them to gain a foothold on the property ladder. It’s a decision, however, that requires careful planning and expert guidance.
Harpur Wealth Management advisors have extensive experience in financial planning, estate management, and taxation. As such, we are well equipped to assist you in the complex process of gifting property to children.
We recognise that every family’s situation is unique, and there is no one-size-fits-all approach to property gifting. At Harpur Wealth Management, we take the time to understand your specific goals, financial circumstances, and concerns. We develop customised strategies that align with your objectives, whether you seek to minimise tax implications, protect your own financial well-being, or simply create a legacy for future generations.
A Guide to Gifting Property to Children
1. Understanding the Basics of Property Gifting
- What is Property Gifting?
- Why Consider Property Gifting?
2. The Tax Implications of Gifting Property
- Inheritance Tax
- Lifetime Gift Tax
- Capital Gains Tax
- Stamp Duty Land Tax
- Annual Gifting Allowance
3. Key Factors When Gifting Property to Children
4. Working With Harpur Wealth Management
1. Understanding the Basics of Property Gifting
What is Property Gifting?
Gifting property to your children in the UK refers to the process of transferring ownership or a share of a property that you own to your children or other family members as a gift. This can be done for various reasons, including estate planning, passing on assets, or simply providing financial support to your loved ones.
When you gift a property to your children, you legally transfer ownership of the property from yourself to them. This means they become the legal owners of the property, with all the rights and responsibilities that come with ownership. The kind of property you may wish to gift may include residential homes, vacation properties, buy-to-let investments, or even parcels of land. You can gift a property that is fully paid off or one that still has a mortgage.
Why Consider Property Gifting?
There are several reasons why families think about gifting property to their children, apart from the desire to do your best for them:
- Estate Planning. Gifting property can be a strategic part of your estate planning. By transferring assets while you are alive, you can potentially reduce the value of your estate, which may have tax benefits for your heirs when you die.
- Avoiding Inheritance Tax. In the UK, inheritance tax (IHT) may be applicable to the value of your estate when you pass away. Gifting property during your lifetime can help reduce the potential IHT liability.
- Financial Assistance. You may want to help your children financially by giving them a property. This can provide them with a home, rental income, or the option to sell the property to fund a business venture, for example.
The Tax Implications of Gifting Property
If you are thinking about gifting property to children, there are some key tax implications to consider prior to making your decision:
Inheritance Tax (IHT):
- IHT Threshold. In the UK, there is an inheritance tax (IHT) threshold, also known as the nil-rate band. This threshold is £325,000 per individual. It means that an estate worth less than £325,000 is not subject to IHT.
- Main Residence Nil-Rate Band. There is an additional allowance called the Main Residence Nil-Rate Band (MRNRB) that applies to the main residence left to direct descendants, including children and grandchildren. This allowance can provide an additional £175,000 per individual.
Lifetime Gift Tax:
- If you gift a property to your children and continue to live in it, there may be potential IHT implications. This is known as a “gift with reservation of benefit.” It means that if you retain any benefit from the property, its value might still be included in your estate for IHT purposes.
Capital Gains Tax (CGT):
- When gifting a property, you may be liable for Capital Gains Tax (CGT) on any increase in the property’s value since you acquired it. However, there are some exemptions and reliefs available.
- The annual tax-free allowance for individuals (Annual Exempt Amount) applies to CGT, so you may not have to pay tax if the gain is within this limit.
- Principal Private Residence Relief (PPR) may apply if the property has been your main residence, reducing or eliminating the CGT liability.
Stamp Duty Land Tax (SDLT):
- Stamp Duty Land Tax may apply when transferring ownership of a property, even as a gift.
- If the property being gifted has a mortgage on it, SDLT may be payable on the mortgage debt assumption.
Annual Gifting Allowance:
- In addition to IHT, there’s an annual gifting allowance of £3,000 per individual. This allowing you to gift this amount without it being counted for IHT.
Key Factors When Gifting Property to Children
At Harpur Wealth Management we tailor our advice to your specific circumstances. When gifting property to children, there are some important considerations we would want to alert clients to:
1. Gifting a buy-to-let property to your children may not be advisable if you still depend on the rental income. However, there is a legal avenue available that allows you to gift the property to your children while retaining the rental income. We would recommend working with a solicitor to draw up a legal deed.
2. In cases where the original owner of a gifted property passes away within 7 years of transferring it to their children, Inheritance Tax (IHT) can still be imposed on the property. In these circumstances, taxation can be incurred twice, leading to potential double taxation – initially as Capital Gains Tax and subsequently as Inheritance Tax.
3. Gifting property is substantial financial undertaking, and the impact on, for example, your funding for retirement or care needs to be thought through carefully. One effective strategy to manage the impact on your finances is to opt for a gradual gifting approach rather than a one-time transfer. This method allows you to retain a measure of control over the property while progressively decreasing the overall value of your estate.
Working With Harpur Wealth Management on Gifting Property
Property gifting is a powerful way to manage your assets and secure your family’s financial future. By understanding and navigating the tax implications effectively, you can leave a lasting legacy for your children.
Navigating the tax implications of gifting property can be complicated. Working with experienced financial advisors with experience in this area can help you to think through the implications of your decision for the future and determine the right course of action to maximise the benefit to your family.
At Harpur Wealth Management we specialise in guiding families through the complex landscape of tax, investments, pensions, estate management and retirement planning. Our goal is always to help you achieve your long-term financial goals. Our services are designed to provide a comprehensive and tailored solution that aligns with your unique circumstances and aspirations.
Ready to secure your family’s financial legacy? If you would like to speak to a Harpur Wealth Management advisor about gifting property to children, call today for a FREE consultation on 01234 924620
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.
The value of your investment can go down as well as up and you may get back less than the amount invested.
The Financial Conduct Authority does not regulate legal or taxation advice.