Giving your home to your children is often suggested as a way to reduce care costs or inheritance tax, but it carries risks. This article explains the pitfalls and safer alternatives.
Deciding whether to give your home to your children during your lifetime is a big decision, and it is one many families face. It can feel like a straightforward way to reduce future inheritance tax, or to protect assets from care fees, but in practice there are several legal and financial pitfalls to consider. Below we set out the key issues and some practical alternatives so you can make an informed choice.
Why people consider gifting the family home
People often think gifting the home will make life simpler: fewer assets to tax on death, less for the Local Authority to count if you need care, and a way to keep the property in the family. Those are understandable aims, but the reality is more complicated. Before you act, it helps to understand how care fees, inheritance tax, capital gains tax and family events can affect a gift made now.
Care fees and deliberate deprivation
One motivation for gifting is to reduce means-tested care costs. However, local authorities can look closely at gifts made before you need care. If they believe you deliberately deprived yourself of assets to avoid paying for care, they can still take that transfer into account when assessing your contribution. Guidance on what counts as deliberate deprivation is available from the government and charities, for example on gov.uk and Age UK.
Timing and intention matter. If you make a gift and then require care soon afterwards, the transfer may be treated as deliberate. You should not assume a gift will protect you from care charges.
Inheritance Tax and the 7 year rule
Many people have heard of the 7 year rule for inheritance tax, but this can be misunderstood. If you give your home away and you no longer have any benefit from it, then the gift becomes potentially exempt after seven years for IHT purposes, provided the estate survives that long. However, if you continue to live in the property without paying full market rent, this is likely to be treated as a gift with reservation of benefit. In that case, the house can remain part of your estate for IHT purposes even after seven years.
If your main aim is IHT mitigation, consider other steps such as using trusts or making lifetime gifts that meet the conditions for being immediately exempt. A specialist can help you plan in a tax-efficient way that suits your circumstances.
Capital Gains Tax and other tax issues
Gifting a home can create a potential capital gains tax (CGT) issue for the person receiving it. Your children will normally inherit your base cost at the date of the gift, so any increase in value after the gift is made could be liable to CGT when they sell. You may also create stamp duty or other tax complications in some situations. On top of this, the recipient's own tax position and future IHT on their estate should be considered.
Other practical risks: divorce, death and loss of control
Once the house is legally owned by your children, you lose control. If the child goes through divorce or insolvency, the property could be subject to claims. If the child dies, the house will form part of their estate, and it may not pass back to you or your chosen beneficiaries. These are real risks that many people do not anticipate when making a lifetime gift.
Safer alternatives and practical steps
You do not have to give the property away to achieve similar goals. Some alternatives include:
- Life interest or discretionary trusts: You can transfer the property into a trust that allows you to remain living in the home, while controlling how it is distributed later. Trusts can be complex, so take specialist advice. See our trusts page for more information.
- Lasting Power of Attorney (LPA): Put an LPA in place so trusted people can manage your property and finances if you lose capacity, without giving ownership away. Find out more on our LPA page.
- Clear wills and promises: A properly drafted will can make your intentions clear and use IHT allowances effectively. Visit our will writing and online will pages to get started.
- Financial planning: Speak to an independent financial adviser about products such as equity release, or about ways to structure gifts safely.
Practical checklist before you make any gift
- Get legal and financial advice about tax and care fee implications.
- Consider whether you might need the income from, or the security of, the property in the future.
- Explore trusts as an alternative that can protect your right to live at home.
- Put a Lasting Power of Attorney in place so your affairs are managed if you lose capacity.
- Document any family agreements in writing and reflect them in your will where appropriate.
If you would like help understanding your options, we can guide you through practical alternatives that protect your lifestyle and intentions without unnecessary risk.
Get help with your will - our will writing service helps you set out clear instructions for your home and other assets.
Explore trusts - trusts can let you remain living at home while planning for the future.
If you have questions about care funding or want to discuss gifting the family home, contact us and one of our advisers will talk through your circumstances and options with you.
You may also find it useful to read guidance on paying for care on the government site: www.gov.uk/what-care-costs.
Making a decision about your home is not something you should rush. With careful planning, you can protect your quality of life and pass on your home in a way that matches your wishes.
Need immediate advice? Email us at [email protected] or get in touch to book a consultation.
Also see our pages on probate for how ownership affects estate administration, and our online will options if you want a straightforward starting point.
Ready to protect your family's future?
Book a free, no-obligation consultation with one of our expert estate planning consultants. We make wills, LPAs and trusts simple, affordable, and completely stress-free.