News & Insights

Inheritance Tax: Giving Away Property

A common dilemma arises when estate planning. People like the idea of saving Inheritance Tax (‘IHT’) and to do so, they wish reduce their estate by giving away either all or part of their main asset, being their home.

Although this may seem a good idea, there are many risks associated with transferring a property within your lifetime and the idea of saving IHT must be balanced with the need to maintain a roof over the ‘donor’s’ head.

Most importantly, when making a gift, the donor must ensure that they do not continue to have any interest in the property, otherwise the gift will be ineffective for IHT purposes. For example, by signing over a house to an adult child, if the donor remains living at the property this will not avoid an IHT charge. The Property will be considered part of the donor’s estate as it is deemed to be a ‘gift with a reservation of benefit’. This is also applicable to gifts into trusts.

Even if the transfer of property to an adult child was dealt with correctly, there are several risks that must be considered:

  1. The donor’s adult child becoming bankrupt. The property will be in their name and can be taken by their trustee in bankruptcy.
  2. The donor’s child may divorce and the property may be considered as a matrimonial asset. This could potentially result in the property being sold and the proceeds split between the donor’s child and their ex-spouse.
  3. There is also a risk of the donor having a disagreement or falling out with their children. Although this may be unlikely, a dispute could potentially result in the donor being evicted by their child as the property is no longer theirs.

If you wish to discuss this further, please contact Ann Coutts on 020 8502 3991 for more information.