The Implications Of Gifting A Property

A property is usually the most valuable asset someone may own whether during or after life.

However, there may be reasons and instances where you may wish to gift all or part of it to someone else.

One of the main reasons include tax planning to reduce the amount of inheritance tax payable on death, so usually parents gifting to their children.

A gift means that there is little or no consideration provided for the transfer of legal and beneficial interest in the property.

You will wish to carefully consider who you want to gift to, depending on the reason for the gift – should it be named individuals, a trust, a company, or some other entity.

You should also consider whether there be any conditions attached to the transfer, for example do you wish to retain the right to live in the property for the rest of your life.

How is a property gifted?

If there is no mortgage on the property, then a simple Transfer (TR1) form signed by the relevant parties should suffice

But this requires execution in a certain way (deed) by certain people (independent adult witnesses).

If there is a mortgage, you will need the consent of the lender to either transfer the mortgage itself, or for a re-mortgage to be taken out to clear the existing mortgage.

A transfer if not done properly could be subject to challenges that it was procured by undue influence, fraud or invalidated for failure to comply with legal formalities.

Common pitfalls and risks

In order for a gift of property to be seen as genuine, you must no longer live (rent free) at the property otherwise this would be classed as a gift with reservation of benefit. This means that for the purpose of calculating inheritance tax, the property will be caught and still form part of the estate.

A genuine gift will still form part of the estate unless the transferor survives 7 years after the date of gifting.

If the transferee does not live at the property as their primary residence, then potentially capital gains may be due on an eventual sale.

They would also have to declare the property as part of their own financial portfolio which may have unintended consequences, such as losing the right to benefits as a first-time buyer or liabilities as a second homeowner.

Transferring a property for no consideration to avoid paying care home fees may also backfire as the transaction could be called into scrutiny by the local authority.

In addition, if you have gifted a property to avoid recourse by creditors or opponents in litigation (such as in divorce proceedings), a court could set aside the transfer.

A court will need to consider whether beneficial as well as legal title has truly passed hands.

In litigation we witness endless disputes seeking to set aside transfers of property and determination of true ownership. In addition, estates may seek to claw back valuable assets gifted in suspect circumstances.

Final Words

Given the financial as well as legal implications from such an important decision and transaction, it should not be embarked on without proper advice from professionals such as tax advisors and lawyers.

In addition, you may need to seek advice and assistance to ensure proper execution to avoid unnecessary technical challenges.

If you are considering gifting a property or have concerns about a transfer that has already taken place, our specialist Dispute Resolution solicitors can help. We provide clear, practical advice tailored to your personal circumstances, helping you avoid costly mistakes and future disputes. Contact our team on 0330 822 3451 to discuss your options in confidence. Alternatively, request a callback.