What are the implications of giving all or part of my main residence to my children?

What happens if you gift all or some of your main residence to your children or other beneficiaries?

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What happens if you gift all or some of your main residence to your children or other beneficiaries?

It depends on the scenario. If you give away any part of your main residence, there won't be any capital gains because you get relief on your main residence. That's straightforward. The other alternative is you give your main residence away entirely and then move in with your children. You've given your main residence away, there's no capital gains tax issues. If you live seven years, it's a potentially exempt transfer, and the property is outside of your estate. The issues arise when most people want to do something different – give away part or all of their main residence and continue to live in it.

When you make a gift for inheritance tax purposes, it has to be an out right arm's length transaction. If you gift half of your property to a complete stranger, then they will expect rent on that property. And therefore, you should do the same with your children. If you don't pay rent on all or part of the property that you've gifted your children, that will fail for inheritance tax purposes and it's called a gift with reservation of benefits. Not only it may fail for inheritance tax purposes, but it's actually even worse than that if you don't pay the rent, because you've now registered all or part of the property in your children's names. It, as far as HMRC is concerned, now belongs to your children.

The fact that it's failed an inheritance tax test has nothing to do with the ownership of the property. When the property is then sold, all or part of that property is going to be subject to capital gains tax - not only did it fail for inheritance tax purposes, you've now also got to pay inheritance tax or your children will. You have effectively made the problem worse, not better.

So, do not give part of your main residence away or all of your main residence.

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