Ten Reasons Not To Give Your Home Away: 5 to 8 - Tax Problems

Continuing my series of reasons not to make a gift of your home, here are some tax problems.

For inheritance tax:

5.     The Gift With Reservation Rule. This rule says that if you give something away but continue to reserve a benefit in it (for example, by giving your home to your children and continuing to live in it) then you are inheritance-taxed at death as if you still owned the asset. (Of course, this is no worse than not making the gift in the first place - but it is the reason why the gift might not work.)

6.     Double Jeopardy. Remember that although the house is treated as part of your tax estate because of the gift with reservation rule, it in fact belongs to your children, and will be taxed as part of their tax estates if they die.

For capital gains tax:

7.     No PPR. Most people never pay capital gains tax on their home because of “principal private residence relief”. But if you give your home away, the owners, your children, are not the same people who reside in the property. So that relief is not available to them and they will suffer capital gains tax on an eventual sale.

8.     No uplift. If you hold onto any asset until your death, all gains made in your lifetime are wiped out. But if you gift the property in your lifetime that never happens - so your children eventually suffer capital gains tax on the whole gain in the property's value, from the date of the gift, until the date of the sale.