Gifting the Family Home

Some of our clients decide they may want to make a gift of the family home to their children, other relatives or even unrelated third parties.

14 Aug 2023

Team name
Paul Fursman

Paul Fursman

Please note that you should think very carefully before making a gift of the family home.  There are many reasons for people considering making a gift of the family home and these can include the following:-

  1. Potential savings on Inheritance Tax.
  2. Avoiding disputes on death by making the gift now to a family member.
  3. Recognising a family member for their help during your lifetime.
  4. Recognising love and affection by making a lifetime gift instead of making a gift in your Will.
  5. Wanting to pass the burden of owning a property on to the next generation and avoid the financial burden of maintaining the property.

Please note there are also reasons to be cautious about making a gift of the family home. Some of these are:-

  1. If the person who you make the gift to runs into financial difficulties, they put the family home at risk and you may lose your place of residence.
  2. If the person who you make the gift to, divorces from their partner, you may lose the family home in a divorce settlement.
  3. The person who you make the gift to may, unfortunately, ask you to leave the property. You may fall out with them and then you would not have a residence.
  4. The person you may make the gift to may die prematurely meaning the property passes by their Will and you could also then lose your right to occupy the property but also the property may pass to someone that you would not have otherwise intended it to. 
  5. There is also false hope about tax. Some clients expect that all gifts including a gift from which they retain a benefit such a residence in the form of a family home will have the effect of saving on Inheritance Tax or some other tax.  It will not usually have such an effect.  It should be noted that if the family home is transferred to a recipient who does not live there it will neither have the benefit of the private residence exemption to Capital Gains Tax on sale nor the benefit of Capital Gains Tax free uplift on your death.  If you decide to proceed with an outright gift this is an important and complex topic which will need to be explained in more detail.  You will need to obtain financial advice on this.
  6. You also need to consider your long-term care provisions before making a gift of the family home.

In a recent article in the Daily Mail published on the 5th July 2023 an 82 year old grandmother gave her home to her daughter for Inheritance Tax reasons.  She did this to reduce the Inheritance Tax burden.  The daughter, however, had her own child and tensions began to grow between the daughter and mother concerning the granddaughter.  Eventually the relationship completely broke down.  The daughter then asked the mother to leave the property.  The case went to court and the grandmother claimed her daughter had tricked her into signing over the property.  The Judge rejected the grandmother’s claim finding that she had willingly transferred the £600,000 property to her daughter as a gift to avoid Inheritance Tax and did so without even telling the daughter she was doing so.

The Judge determined that “…the flat had been gifted by the mother, to her daughter, with the aid of a solicitor and without the daughter even knowing about it.  From that it would follow that it was an outright gift and would appear that it was part of some sort of tax planning.” The Judge ordered that the grandmother gave up possession of the property and stated that she also had to pay the court costs.

M&P Commentary

Paul Fursman, Senior Associate Solicitor in our Residential Property team, said:

“Please note that when gifting a family home, you need to think very carefully about this and consider the advantages and disadvantages. We also recommend clients should take Capital Gains, Income Tax advice, Stamp Duty Land Tax advice and Inheritance Tax Advice before making a gift so that you understand the full tax implications of making the gift of the family home.  We also recommend you take advice from us on setting up a Will and Lasting Power of Attorney at the same time.”



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