Transferring Property Ownership to Your Child

Parents can transfer ownership of a property in the form of a gift or by transferring equity in the property. Read on to discover the different types of ways to transfer a property.

John Fitzsimons Published on 01 October 2021.
Transferring Property Ownership to Your Child

It is not uncommon for parents to want to transfer a home into their children’s name, for a variety of reasons. Sometimes it is an attempt to avoid, or at least reduce the eventual size of, an inheritance tax bill. In other cases, it is done to help their child get on to the housing ladder.

Whatever the motivation, there are plenty of important steps to consider before you attempt to transfer ownership.

Transferring equity to your children

A transfer of equity is when someone new is added to the deeds of a property, but the current owner remains on there too.

Transfer of equity is a useful option if you have just got married, for example, and want to add your spouse to the property deeds. But it can also be used by parents who want to transfer partial ownership of a property to their children.

If you use transfer of equity, be warned that your child may have to pay stamp duty. From a tax perspective, when the equity is transferred it is as if a property transaction has taken place. As a result, your child is viewed as a buyer – bear in mind that this means that your child will no longer be considered a first-time buyer and can’t benefit from first-time buyer schemes in the future.

» MORE: How to start thinking about estate planning

How to gift a property to a child

Alternatively, you might wish to gift your property to your child. Rather than handing the child a portion of the equity in the property, this would mean they own the property in its entirety.

While you can gift a property to your child, it is important to be aware of the inheritance tax rules, as the gift may be subject to this tax.

Inheritance tax is charged based on the value of your estate when you pass away. Everyone enjoys a £325,000 tax-free allowance, called the nil-rate band, but you are then charged inheritance tax at 40% on the value of your estate above this threshold. You can combine assets with a partner to increase this threshold to £650,000.

This tax-free threshold can be even higher – as much as £500,000 for each parent or £1 million in total – when leaving an inheritance to children or grandchildren if the estate is worth less than £2 million.

If you die within seven years of gifting something to your children, that asset ‒ whether it’s a house, a car, or simply cash ‒ is still classed as being part of your estate when determining whether you need to pay inheritance tax.

As a result, there may be some tax charged against the value of the property, even if your child has taken ownership of it and is now living there. These are known as potentially exempt transfers and the amount of tax payable reduces the longer you live after making the gift, from 40% in the first three years, gradually reducing to 0% after seven years.

Additionally, if you gift the property to your child but choose to continue living in it, you will need to pay rent to the new owner at the current market rate and contribute towards the household bills. You can’t simply live in it, rent free, as their guest – otherwise it will still be treated as part of your estate after you die, even if you live for longer than seven years after gifting it to your loved one.

If you are gifting a buy-to-let property to a child, there is also capital gains tax to consider. Expect to pay capital gains tax on any increase in the value of the property since you purchased it, once the ownership of the property transfers to your child.

The actual process of transferring the property into your child’s name will require legal help, so it’s a good idea to speak to an experienced conveyancer who can talk you through it. You might also want to consult a tax adviser so that you understand what tax bills you might face as a result.

» MORE: What is a beneficiary?

Can I transfer property ownership to someone under 18?

If your child is under the age of 18, they cannot own a property in their name.

However, it can be held in trust until they turn 18, at which point the child will take ownership of the property. There are various trusts that can be used. For example, with a bare trust, another adult holds the property in the name of the child until they turn 18.

Alternatively, you could set up a trust deed, which will set out the beneficiaries and trustees, as well as how and when the trust’s assets ‒ in this case the property ‒ should be distributed.

You will need a solicitor to write the trust for you.

Image source: Getty Images

About the author:

John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more

Looking for a new mortgage deal? Compare mortgages now

If you have any feedback on this article please contact us at [email protected]