In brief
Gifting your home to children while continuing to live there triggers HMRC Gift with Reservation rules, meaning the property remains taxable in your estate. It may also create Capital Gains Tax and family risk issues without proper professional planning.
The common misconception
Transferring the title deeds of the family home into children’s names while continuing to live there is one of the most widespread inheritance tax traps in the UK. Many people assume that surviving seven years after signing over the deed completely removes the property from their taxable estate.
Gifts with Reservation of Benefit (GWROB)
Under Section 102 of the Finance Act 1986, if you make a gift of property but retain a benefit from it — such as continuing to reside in the house rent-free — HMRC treats the transfer as a Gift with Reservation of Benefit. For inheritance tax purposes, the property is deemed to remain entirely in your estate on your death, no matter how many decades pass.
The Capital Gains and family risk trap
Gifting a home during your lifetime can also trigger unexpected Capital Gains Tax (CGT) for your children when they eventually sell it, because it is not their main residence. Furthermore, once children own the property, it becomes an asset vulnerable to their potential divorce proceedings, business bankruptcy, or personal creditors.
Legitimate planning alternatives
Compliant inheritance tax mitigation involves using your available nil-rate band and residence nil-rate band, valid trusts, gifting from surplus income, or dedicated life assurance in trust to fund the liability. If you have already transferred property or are considering doing so, an initial review will help you understand the risks and correct course.
Source: GOV.UK: Passing on a home and inheritance tax