The gifting of property is something more and more parents are having to do to help the children get onto the housing ladder. The challenge though is how to do and to know what implications are there to gifting property to your children.
Strong consideration needs to be given into agreeing the intentions between the parents and their children to set out the answers to:
- Will the parents remain on the title of the property and jointly own with the children?
- What share split are you giving to your children?
- Are there any conditions you want to agree in a deed of trust between your children, such as what happens if either of them get a partner?
Here are some examples to help you work out which process you need to follow.
Scenario 1. Outright gift to children with no mortgage
If you are giving your children your property for zero consideration and you will not remain on the title of the property then the process you need to follow is the same as a sale and a purchase.
The parents will need to consider the gift implications in relation to their potential inheritance tax or if they become bankrupt.
Scenario 2. Parents jointly own with children with uneven beneficial shares
Where parents want to add their children onto the title of their property the process is completed under a Transfer of Equity. The parents should consider how they will own the property with their children including:
- What is the beneficial interest share between them?
- What happens if one of the children wants to sell?
- What happens if one of the children gets married?
- What happens if either the parent or child secures a loan over the title?
A deed of trust should be drafted to clearly set out the intentions for the property between the parents and the children.
In doing this, there may be stamp duty to pay. If the parents complete a transfer of equity where the consideration being paid by the children when added onto half of the parent’s outstanding mortgage (or split equally between the current legal owners) exceeds the stamp duty threshold, then stamp duty is payable at the prevailing rate including the additional 3% rate if the children own a second home.
The payment (consideration) can take the form of cash, the giving of goods (giving a personal possession in exchange for the land/property), providing works or services (giving work or a service in exchange for the land or property), release from a debt, transfer of a debt, including the balance of an outstanding mortgage.
Which way is best?
This depends on what is agreed between the parents and their children. Many parents gift their property as part of the inheritance tax planning. The best advice is to speak to a tax specialist to help structure the gifting to your children.
Andrew Boast MAAT MIC
Co-founder of SAM Conveyancing