We explain, clearly and calmly, what happens when someone hands over a property yet stays put. This article outlines the rules that often surprise families and the reasons HMRC can still treat a transfer as part of an estate.
We will show the core risk in plain language. If you give a gift and continue to occupy the house, HMRC may apply Gift with Reservation of Benefit rules. That can mean an unexpected inheritance tax bill.
We also cover the two main risk areas: tax outcomes such as inheritance tax and capital gains, and real-life outcomes like loss of control and care assessments.
If you want a practical guide, read our linked guide on protecting assets: inheritance tax and gifts.
Key Takeaways
- Giving property while remaining resident can trigger tax rules that undo the benefit.
- HMRC has reclaimed large sums where rules were misunderstood.
- Think about both tax and family outcomes before acting.
- Plans must balance protection for children with personal security.
- Use clear advice and the right paperwork to reduce risk.
Why homeowners consider gifting property to children during their lifetime
Passing property during a lifetime is a common route for families wanting to help a child onto the ladder.
We see two clear motives. First, parents want to help with deposits, support a move up the property ladder or provide a place to rent out. Second, some choose this as part of long-term tax planning.
Helping family onto the ladder versus inheritance tax planning
Practical help is immediate. A gift can cut the need for a mortgage or offer rental income for a child. It can ease cash flow and secure a foothold on the ladder.
Tax planning aims to reduce estate value at death. That can work, but it depends on surviving for a set period and meeting strict rules.
What a transfer really means for ownership, control and rights
A legal transfer moves ownership and often control. That can change who decides repairs, who benefits from rent and who owes the mortgage.
- Children under 18 cannot always hold land outright; trusts are common.
- Bare trusts give the child legal title at majority. Formal trusts can delay control.
- We recommend discussing circumstances with a solicitor and tax adviser before any action.
Inheritance tax basics for UK estates: thresholds, rates and what counts as your estate
We start with what HMRC counts when someone dies. An estate is the total of property, savings and possessions. Debts and some funeral costs are deducted before tax is worked out.
The nil-rate band is £325,000. That means the first £325,000 of value is free of inheritance tax. Above that level the usual rate is 40% on the amount over the threshold.
Residence nil-rate band and the £2 million taper rules
The residence nil-rate band can add up to £500,000 for a qualifying person. Couples can combine bands and may reach up to £1 million between them.
However, the residence allowance reduces by £1 for every £2 the value of the estate exceeds £2 million. It disappears in full by £2.35 million.
Worked example: how allowances can reduce inheritance tax on a home
Example 1: a couple with a £900,000 estate that includes a £500,000 property may have up to £1 million of combined allowances. That can mean no inheritance tax is payable.
Example 2: a single person with the same figures can use up to £500,000 of allowance (nil-rate plus residence band). Any value above that may face inheritance tax at 40% on the excess.
We explain these figures so you can sense-check whether planning is necessary. For a deeper walkthrough see our guide on inheritance tax per person.
Gifting your home but continuing to live in it UK: why HMRC may still tax it
When someone hands over title yet keeps the right to stay, HMRC may view that as a reservation of benefit. This is the point where a well-intended transfer can become taxable on death.
Gift with Reservation of Benefit (GROB) explained in plain English
GROB means if you give away a property while keeping the benefit of living there, HMRC can treat the property as still being part of your estate for inheritance tax.
How a GROB pulls the full property value back into your estate on death
Even if the legal title moved years earlier, HMRC can include the full value of the property when calculating inheritance tax on death.
The result can be the same tax bill as if no transfer occurred.
Paying market rent: when it helps, and the practical pitfalls
Paying a genuine market rent can remove the reservation. The rent must match local market rates and be kept under regular review.
Practically, this can strain pension income and feel odd paying children for staying in a house once owned by the parent.
Knock-on tax for children: income tax on rent received
If children receive rent, that amount is usually taxable income for them. They may need to report it and pay income tax on any profit.
- Rule of thumb: token payments or informal arrangements rarely satisfy HMRC.
- Warning: HMRC has reclaimed large sums where families misunderstood the rules.
The seven-year rule, potentially exempt transfers and when inheritance tax still bites
The seven-year rule is a timing test, not a promise. Outright lifetime gifts to another person are usually Potentially Exempt Transfers (PETs). If the donor survives seven years from the date of the gift, that transfer normally falls outside the estate for inheritance tax.
Potentially Exempt Transfer (PET): what “survive seven years” really means
A PET works only for genuine, unconditional gifts. Any strings attached or a reservation of benefit can pull the value back into the estate, even after many years.
Die within seven years: how the value of gifts is treated and who pays
If you die within seven years, gifts made may be added back when calculating inheritance tax. Where gifts exceed the nil‑rate band the tax may be charged on the estate or, in some cases, the person who received the gift must pay.
Taper relief between three and seven years
Taper relief can reduce the inheritance tax due on gifts made more than three years before death. The reduction works on a sliding scale between years 3 and 7. It lowers the tax liability but does not remove the gift from the estate.
- Example timeline: gift in year 0, die in year 2 = full tax charge on the value gift.
- Die in year 5 = taper may cut the tax bill.
- Survive to seven years = PET is usually outside the estate.
Note: PET planning must align with wider estate planning. A transfer caught by reservation rules will not benefit from the seven‑year test. We recommend clear legal and tax advice when timing matters.
Other tax consequences when you give away a house
A lifetime transfer can trigger immediate tax bills that many donors do not expect. We should look beyond inheritance tax and see where costs and reporting duties arise.
Capital gains tax rules and the 60-day window
Capital gains tax is calculated using market value when a property is given away, even if no cash changes hands.
If residential gains tax applies, you normally must report and pay within 60 days. Remember the £3,000 annual exempt amount and that residential rates are 18% or 24%, depending on income.
When Private Residence Relief helps
Private Residence Relief can remove or cut a gain if the house was your main residence. Full relief needs genuine main-residence use and proper periods of occupation.
Stamp Duty and mortgage transfers
A transfer that carries an outstanding mortgage can trigger stamp duty charges. SDLT (or LBTT/LTT) treats the mortgage as consideration and may create a liability.
UK nations: thresholds at a glance
- England & Northern Ireland (SDLT) nil band £125,000 from 1 April 2025.
- Scotland (LBTT) threshold £145,000.
- Wales (LTT) threshold £225,000.
“Don’t assume a gift is tax-free — check market value rules and reporting duties.”
For a deeper walkthrough of gains and inheritance interactions, see our guide on inheritance tax and capital gains tax on inherited.
Non-tax risks: the “real life” consequences of no longer owning your home
There is more at stake than tax: practical hazards often erode the security people expect.
When legal title moves, the safety net that once felt permanent can vanish. We explain the main risks so you can decide with clear eyes.
Divorce, bankruptcy and creditor claims
Divorce can drag the property into a settlement. A court may treat the asset as part of the pool, even if a parent intended it as a gift.
Bankruptcy or creditor claims against a child can force a sale. That can leave the donor without shelter or control.
Relationship breakdown and eviction risk
If you do not hold title, your right to remain may be weaker. Informal agreements give limited protection. Seek clear written terms and a solicitor if you plan any occupancy.
If a child dies first
The property may pass under their will or intestacy rules. Beneficiaries may have different priorities than the donor.
Care fees and deprivation of assets
Local authorities may view transfers as deprivation of assets when assessing care liability. That can remove any perceived benefit from the gift.
Read more on how councils treat transfers here: deprivation of assets and care fees.
| Risk | What can happen | Practical effect |
|---|---|---|
| Divorce | Asset included in settlement | Possible forced sale or shared ownership |
| Bankruptcy | Creditors claim property | Loss of shelter and independence |
| Death of child | Property passes to beneficiaries | Donor may be asked to leave |
| Care fee assessment | Transfer treated as deprivation | Transfer ignored; asset still counted |
Protecting future you: tax savings are not worth a loss of control. For practical alternatives that balance family aims with security see our guide on protecting your family’s future.
Safer alternatives and planning options to consider before gifting your house
Many people prefer practical planning that gives help without giving away full ownership or control.
Co-habitation and sharing arrangements
True shared ownership where each party pays a fair share of upkeep and bills can reduce the risk of a reservation of benefit. That must be real and documented.
Give a share rather than the whole property
Transferring a proportion keeps some control and can be a halfway way between help and security. It can also change the tax and inheritance picture in a more manageable way.
Trust options for minors
Minors often need a trust. A bare trust passes legal title at majority. More formal trust structures let donors retain directions and delay control, but note that some trusts can trigger an immediate 20% inheritance tax charge if they exceed available nil‑rate bands.
Many families prefer giving money or post‑tax rental income rather than the property itself. This supports a child and keeps income and inheritance planning simpler.
Always get professional advice
We recommend aligning tax, estate planning and family circumstances with a solicitor or tax adviser before any lifetime transfer. For practical guidance on transfers to children see gifting property to children.
Good planning balances help for children with protection for the donor’s income and inheritance goals.
Conclusion
Conclusion
We urge pause and care before any transfer that leaves a person staying in the same house. A well‑meant move can harm a family if reservation rules apply.
Key points: a Gift with Reservation of Benefit can pull a property back into the estate. PETs need seven years and are not a fail‑safe. Watch how residence nil‑rate bands taper above £2m. Remember CGT reporting within 60 days and possible SDLT on mortgage transfers.
Quick checklist: check estate size and allowances, confirm realistic market rent if planned, review CGT/SDLT risk and consider care fee rules for deprivation of assets.
For example, if the value estate sits well under combined allowances, simple planning may avoid risky gifts. We recommend tailored advice before signing—undoing a transfer is rarely straightforward or cheap. This article aims to help you choose a solution that protects both housing security and family aims.