Yes, you can put your house in your children’s name or transfer the house to their name to bring down your overall inheritance tax (IHT) – but it is important to take legal steps to make it official and avoid any penalties or large tax bills down the line.

There are a few ways to pass on your house to your children including:

• Gifting the house
• Gifting with reservation of benefit
• Your children paying capital gains tax
• Paying stamp duty

Giving your children your house through gifting

The simplest way to give your house to your children is as a gift, and this will be exempt from inheritance tax (IHT) if you survive for 7 years after the transfer. After this time has passed, it is no longer included in the estate and subject to inheritance tax.

If you die within 7 years,  the percentage of inheritance tax due can be reduced on a sliding scale. 

Gifting with reservation of benefit 

The role of ‘gifting with reservation of benefit’ is a term used by the HMRC to describe a scenario where you continue to live in the property (not your children) and you do not pay rent.

This implies that the house is possibly not gifted at all, and therefore the house is still considered to be part of the estate and is taxable.

To avoid this rule, you can still gift the property to your children but you must pay them a fair monthly rent or move out of the property officially.

Your children must pay capital gains tax

If your children wish to sell the property, whether you are alive or not, they could be charged capital gains tax on any increase in the house’s value. 

You do not pay capital gains tax (CGT) on your own property, but you do when a property is transferred to you.

You will need to weigh up various options here, such as whether it is worth selling the property, or whether the potential growth and capital gains tax is less than the inheritance tax charged.

Paying stamp duty

To legalise the process, your children may be required to pay stamp duty, especially if they need a mortgage to cover the costs of the house.

Couples also have to understand the implications of who owns the house if there is divorce or bankruptcy.

What other options are there if I want to give my house to my children?

Importantly, there is a tax exemption if you are giving your primary residence to your children. There is the nil rate band at £325,000 and the residence nil rate band which is an extra £175,000 per person. Depending on the value of the property, there may be some tax exemptions anyway. 

Some other options include putting the property in a trust which is exempt from any tax. Some couples also consider downsizing earlier and using the proceeds as a gift to their children, whether it is bigger gifts within 7 years or smaller gifts at £3,000 per year which are then tax exempt. 

Speaking to a tax advisor or estate planner is always recommended to ensure a smooth transition and to avoid any large penalties or tax bills.