Should I gift my home to my children to avoid inheritance tax?


A surprisingly frequent question we hear from clients is: "Can’t I just give my home to my children now to avoid paying inheritance tax (IHT) on the home?". On the face of it, a gift of valuable property in your lifetime might appear to be a sensible tax planning step, yet so few understand that the gift may not be effective for inheritance tax and that there are other risks associated with a gift of the family home. 

Practical and personal consequences 

If you transfer the property to a child, it is then theirs to do with as they wish. This means if you and your child subsequently suffer a breakdown in your relationship, your child can decide to sell the property. You may not wish to vacate the property but they could apply to the court for a vacant possession order to force you out of the property. 

Clients are often of the view that this will never happen but, sadly, even the best of relationships can turn sour and there is no guarantee your child will allow you to continue living in the property. 

As an added complication, if your child is married and later divorces, then your home becomes an asset in their divorce proceeding. Your son-in-law or daughter-in-law could be entitled to half of your child’s share of the property. The divorce proceedings could force a sale of the property. 

Further, if your child dies before you then the property is an asset of their estate. The property will pass to their beneficiaries under their own Will (or if they have no Will under the intestacy rules). If they do not grant you a right of occupation in their Will, then you are at the mercy of their beneficiaries who will decide whether or not you can live there. The property could be subject to inheritance tax in your child’s estate. Their executor may need to sell the property in order to pay the inheritance tax. 

If your child has financial difficulties in the future and becomes bankrupt, the Trustee-in-bankruptcy may sell the property to pay off the creditors. 

Tax Consequences 

If you gift your home to your children and continue to live in the property then HMRC will class this as a gift with reservation of benefit (GROB). This means that the value of the property will be included in your estate for inheritance tax purposes. The only way to avoid the GROB rules is to pay a full market rent to your children. Many clients think it is possible to avoid the GROB rules by paying a ‘peppercorn’ rent or for the child to pay a small purchase fee but these will not circumvent the rules. If you continue to live in the property you must pay a full market rent which must be reviewed annually and specialist advice should be sought to ensure it is a true market rent.

If and when the property is sold unless your child is living in the property they will have to pay capital gains tax on any increase in the value of the property since the date of the gift. 


Gifting your home may not be the best way of reducing your inheritance tax liability.  You should discuss with your chosen legal advisor your options for mitigating the inheritance tax payable on your death. 




Nicola Hawkins

Associate Solicitor, Irwin Mitchell

Nicola works in the lifetime and estate planning team in Irwin Mitchell’s Chichester office. She also sees clients in the firm’s London and Southampton offices.  She advises clients on all aspects of their estate planning, including: wills, trusts, inheritance tax planning, powers of attorney, probate and estate administration.

She has a particular interest in advising more elderly and vulnerable clients and those clients who are looking to provide for vulnerable beneficiaries.

Nicola is a Dementia Friend. She is a full member of the Society of Trusts and Estates Practitioners (STEP) and a full accredited member of the Solicitors for the Elderly.

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