Thinking about the future and wanting to help your children is a natural instinct. For many homeowners, the question “Can I gift my house to my son or daughter?” is the first step in that process. It sounds straightforward enough — transfer the deeds, keep living there, and everyone’s happy, right?
Well, not quite.
While it’s legally possible to gift your property to your adult child and continue living in it, this seemingly simple solution is fraught with financial traps and complex tax rules here in the UK. In fact, it can often create more problems than it solves, leaving both you and your son worse off than when you started.
In this article, we’ll break down the key tax rules around Inheritance Tax, explain how this could impact potential care fees, and most importantly, explore practical alternatives that might better achieve your goals without the headaches.
The Simple Answer and the Big Problem: “Gift with Reservation of Benefit”
Yes, you can legally transfer the deeds of your property to your son. The process itself is relatively straightforward — a solicitor can handle the paperwork, and within a few weeks, your son becomes the legal owner.
But here’s where it gets complicated.
If you continue to live in the property without paying market-rate rent, HMRC will view it as a “Gift with Reservation of Benefit” (GWR). Think of it like giving someone a present but keeping the remote control. For tax purposes, if you still benefit from the ‘gift’, the government doesn’t see it as a true gift at all, as explained in their official guidance.
And that’s a massive problem.
Under GWR rules, the property’s value remains part of your estate for Inheritance Tax (IHT) purposes, no matter how many years have passed. This completely defeats one of the main reasons people consider gifting property in the first place: to reduce their inheritance tax bill.
The Inheritance Tax (IHT) Trap
Let me explain how this works in practice.
Normally, when you make a large gift (known as a Potentially Exempt Transfer or PET), it falls outside of your estate for Inheritance Tax purposes if you survive for seven years after making it. This is commonly called the “7-year rule”, and it’s a legitimate way to reduce inheritance tax.
But here’s the catch.
Because your house is a “Gift with Reservation of Benefit” if you’re still living there rent-free, the 7-year clock never starts ticking. The house is treated as if you still own it on the day you die, regardless of whose name is on the deeds.
Let’s look at the numbers:
The current IHT nil-rate band is £325,000. There’s also an additional £175,000 residence nil-rate band (RNRB) when a main residence is passed to a direct descendant like your son.
This brings the total potential IHT-free allowance to £500,000 per person.
Sounds decent, right?
But a GWR situation complicates these allowances significantly. The full value of the property will be included in your final IHT calculation, potentially leading to a 40% tax bill for your heirs on everything above the threshold. If your house is worth £700,000, that’s an £80,000 tax bill your son could face, even though you “gifted” it to him years ago.
Not exactly the helping hand you intended.
The Care Home Fees Risk: “Deliberate Deprivation of Assets”
Tax isn’t the only concern. Let’s talk about care costs, another major worry for homeowners planning their future.
When assessing who pays for residential care, your local authority conducts a financial assessment (a means test) of your capital and assets. If you have more than £23,250 in assets, you’re expected to contribute to your care costs.
Now, you might think, “Well, if I’ve given my house away, it’s not my asset anymore.”
Not so fast.
Local authorities have the power to investigate what’s called “Deliberate Deprivation of Assets”.
As the charity Age UK explains, this is the term used when a council believes someone has intentionally reduced their assets to avoid paying for care.
And gifting a house? That’s a classic example.
Here’s the kicker: unlike the 7-year IHT rule, there is no time limit for a local authority to look back at asset transfers.
None whatsoever.
If they decide your gift was made to avoid care fees — even if it was 10 or 15 years ago — they have the power to include the property’s value in their assessment anyway.
Worse still, they can even recover the costs directly from the person who received the gift. That means your son could be on the hook for your care fees, despite legally owning the property.
Is Paying Rent to My Son a Workaround?
Right, so you might be thinking: “What if I pay rent? Surely that solves the problem?”
It’s the main way to avoid the GWR rules — by removing the “benefit.” In theory, if you pay your son rent to live in the property you once owned, HMRC can’t claim you’re still benefiting from the gift.
But before you rush to set this up, let’s look at what’s actually required.
This must be a formal, commercial arrangement. We’re not talking about slipping your son a tenner every month and calling it square.
You need:
- A formal tenancy agreement, properly drawn up and signed
- Rent at the full market rate for a similar property in your area (a “peppercorn” or token rent won’t cut it)
- Regular, demonstrable payments via bank transfer — cash won’t do
Sounds manageable? Well, consider the downsides for everyone involved.
For you: You’ve just gone from homeowner to tenant. You lose all the security that comes with owning your own home. Can’t pay rent one month due to unexpected costs? Technically, you could be evicted. From your own home. By your own son.
Not exactly the retirement you imagined.
For your son: He’s now a landlord with all the legal responsibilities that entails — safety checks, repairs, dealing with tenancy laws. Plus, here’s the real sting: he must declare the rental income and pay income tax on it. If he’s a higher-rate taxpayer, that’s 40% of the rent going straight to HMRC.
And we’re not done yet.
When your son eventually sells the property, he’ll likely face a significant Capital Gains Tax (CGT) bill. Why? Because it wasn’t his primary residence. The tax will be calculated on the increase in value from the date you gifted it to him. With property prices typically rising over time, that could be a five or six-figure tax bill.
Suddenly, this “simple” solution doesn’t look so simple anymore.
A Simpler, Cleaner Alternative: Selling and Gifting the Cash
Given these serious complications, it’s clear that gifting a property you still live in is rarely the best option.
So what’s the alternative?
A far more straightforward approach is to deal with the asset in a cleaner way: sell the property and gift the cash proceeds.
Think about it. A cash gift is unambiguous. There’s no “reservation of benefit” because you’re not living in a pile of banknotes. The standard 7-year rule for IHT applies as intended — survive seven years after making the gift, and it’s completely outside your estate for tax purposes.
You maintain complete control and flexibility. With the cash in hand, you can decide what to do next — downsize to something more manageable, rent a lovely flat near the grandchildren, or keep some funds aside for potential care needs. Meanwhile, your son receives a significant sum to use as he wishes, free from the burdens of being an accidental landlord or worrying about future tax bills.
The challenge, of course, is the selling process itself.
Selling on the open market can be slow, stressful, and uncertain. You could be waiting months for a buyer, all while dealing with the constant risks of a broken property chain.
Not ideal when you’re trying to sort out your affairs and help your family.
The Easy Sale Solution
For those who want to simplify their affairs and help their family without the months of uncertainty that come with an estate agent sale, a professional cash house buyer offers a direct path forward.
This is where a service like Property Rescue becomes invaluable.
Instead of waiting months, you can have a guaranteed sale agreed in days and the cash in your bank within a week.
Need more time to find your next home? No problem. Want it done quickly? We can accommodate that too.
There are no property chains to break or buyers pulling out at the last minute. You get a firm cash offer, so you know exactly what you have to work with for your future plans. No nasty surprises, no renegotiations, just certainty.
When you sell your property directly to us, all legal fees are covered, and there are no estate agent fees to pay. The offer you accept is the money you get, making financial planning simple and transparent.
Contact us and get a free, no-obligation cash offer from Property Rescue today.
It’s completely free, confidential, takes only a minute, and gives you a firm no-obligation cash offer to help you plan your next steps with confidence.
