Gifting your new build house to your children

As you begin thinking about long-term finances and ways to support your family in the future, you might start to ask whether you can gift your house to someone. As inheritance tax is charged up to 40%, it can take a significant portion of your life’s savings. This reduces the value of the assets you pass on through your will. Because of this, some homeowners may explore gifting property during their lifetime, rather than leaving it as part of their estate. 

But can you gift your house to your children and what should you consider before doing so? In this guide, we explore how gifting a home works, the potential benefits, and the key legal and financial factors to be aware of before making a decision. 

What does it mean to gift your house to someone?

Gifting your house allows you to pass on ownership without receiving payment. It’s typically done between close family members, partners, or parents and children, and benefits the recipient rather than the giver. When you gift a house, you also pass on responsibility for all bills and council tax payments. 

What reasons are there to gift your home?

There are a couple of main reasons to give your home away, especially if you’re planning for the later stages of your life. These reasons are usually financial in nature and involve setting up a less expensive transfer of your assets to your children. 

• Reduce inheritance tax: As inheritance tax is so high, at up to 40%, it can drastically limit how much support you can give your family. If your home is one of your assets, your beneficiaries may be forced to sell it in order to pay the inheritance tax, and your house will not be passed on to the people you want it to go to. If the house is no longer your asset upon death, it won’t be charged under inheritance tax, and your children can keep either the home or sell it for its full value (excluding other forms of tax, of course). 
• Provide your family with assets: The most selfless reason to gift a second home to your child is simply to give them a financial boost. Owning a paid-off home can save them from mortgage costs in future, and it can significantly improve their credit score and financial security. This is the reason that many parents choose to gift when they have the means. 

What is the 7-year rule when you gift your house?

The 7-year rule is an important consideration when gifting a property or other assets. 

Government regulations in the UK state that if you give a gift but pass away within 7 years, the gift may still be counted as part of your estate and inheritance tax charges could apply. In some cases, taper relief may reduce the amount of tax owed on gifts made between three and seven years before death, although this relief applies to the tax due rather than the value of the gift itself. 

However, if you do live longer than seven years after gifting your home or assets, the value of that gift usually falls outside of your estate for inheritance tax purposes. This means no inheritance tax would be due. 

Is Capital Gains Tax due on gifted properties?

When you gift a property, Capital Gains Tax (CGT) can sometimes apply, depending on the circumstances. 

In the UK, CGT is usually charged on the increase in value of an asset from the time you acquired it to the time you gifted it, even if no money changes hands. This means that if your property has gone up in value since you bought it, HMRC may calculate a gain based on the market value at the time of the gift, and you could be liable to pay CGT at the applicable rate. However, there are some exemptions and reliefs. For example, your main residence is often exempt from CGT if it is your primary home and not let out or used for business purposes, so if you gift your primary home to your child, it may not trigger a tax liability. Because tax rules can be complex, especially if the property is not your main home or if you continue to benefit from it, it’s important to speak with a solicitor or accountant before completing a gift. 

How to gift a new build home to your children

Gifting a home involves legally transferring ownership to another person, often supported by a deed of gift to confirm that no money has changed hands. There are several steps you’ll need to follow to ensure the transfer meets all legal and registration requirements. 

1) Decide whether you’ll pay off the mortgage 

While you can gift a mortgaged home to your children, it involves several additional checks and balances. The lender will need to confirm that your children qualify to take over the loan, which involves an affordability assessment and other credit checks. You’ll also be passing along a financial liability, especially if your children have other homes and mortgages to pay. 

2)  Consider your inheritance tax allowances 

If your intention is to reduce the cost of inheritance tax, it’s important to check whether gifting your home is necessary. In England, the standard inheritance tax threshold is £325,000, which can increase to £500,000 if you leave your main residence to your children and meet the qualifying conditions. Property left to a spouse or civil partner is usually exempt from inheritance tax. 

Gifting a home during your lifetime may still have inheritance tax implications, depending on how long you live after the gift and whether you continue to benefit from the property. For this reason, professional advice is strongly recommended. 

3)  Have your house assessed and valued 

If you decide that the best course of action is to gift your home to your children, obtaining a professional valuation is strongly recommended. This helps establish the property’s market value for tax and record-keeping purposes. 

If you continue to live in the property without paying market rent, the gift may be classed as a ‘gift with reservation of benefit’, meaning the home could still be included in your estate for inheritance tax purposes. A valuation helps advisers assess any future tax liability accurately. 

4)  Speak to a solicitor to arrange the transfer 

You can gift your home without involving a solicitor, but professional assistance can help the process go smoothly. Your solicitor will ensure that there are no legal requirements or considerations that you’ve missed and can advise you about the remaining paperwork you’ll need to complete. They can also arrange for an impartial notary to witness you signing the deed of gift. 

5)  Sign a deed of gift in front of witnesses 

A deed of gift is a legal document and must be signed in the presence of independent witnesses. While a notary is not always required, a solicitor can ensure the document is executed correctly and stored safely for future reference. 

6)  Inform the Land Registry of the new ownership 

You can inform the Land Registry of the ownership change by filling out form TR1. This involves providing your information, your child’s information, and the date and details of the transfer. If you still have your solicitor on hand, they can help to guide you through the process and ensure that you’re giving all necessary information to the registry. 

Are the rules different on older houses versus new build homes?

No, if you gift your house to your children, the same rules and requirements will apply, whether you are giving a new build or an older home. However, there are a few practical points to note: 

• Valuation: New build homes are easier to value as they have a recent sales price. Older homes may require more detailed assessments. 
• Mortgages: If the property has a mortgage, the lender will require approval before passing over the responsibility to someone new. These checks and approvals are the same across properties of all ages. 
• Tax implications: Inheritance tax, the 7-year rule and Capital Gains Tax are applied equally to new build homes and older houses. 

Buying a new build house to gift to your children

If you’re buying a second home to gift to your child, a new build can be an excellent choice. Complete with a 10-year warranty and built with fresh materials, your brand new home will be a valuable asset to leave to your children. If you’re interested in purchasing a Bloor home to give to your family, book an appointment to view our showhomes today.