Grandparents considering giving their property to grandchildren before they die have been warned the process is far more complex than simply handing over the keys.
Experts point out that once a property is gifted, the original owner loses legal control over it. Laura Walkley, partner and head of the private client department at TWM Solicitors LLP, said: "Even where there is complete trust between family members, circumstances and relationships can change over time. In a worst-case scenario, the original owner could lose their home."
Disputes, debt, divorce and death were identified as four key scenarios that could put the donor at risk. If the recipient divorces, the property may be vulnerable to claims from a former spouse, and if the recipient dies first, the property could pass to people the donor never intended to benefit.
Giving a home away while continuing to live in it does not automatically avoid inheritance tax. Shaun Moore, tax and financial planning expert at Quilter, said: "If you gift a property but still benefit from living there, HMRC will treat it as a 'gift with reservation of benefit'. This means the property would still be counted as part of your estate for inheritance tax purposes."
To avoid this, the donor would typically need to pay full market rent plus a share of bills, which could create an income tax liability for the recipient.
There may also be capital gains tax implications if the property is not the giver's main residence. Moore said: "So, if I gifted a buy-to-let, for example, the gift is viewed as a disposal for CGT purposes that realises any gain made."
Giving away a home could also create difficulties if the donor later needs care, as they would not be able to sell the property or use equity release to pay for it. Under deprivation of assets rules, local authorities could scrutinise gifts made later in life if they believe assets were transferred primarily to avoid care costs.
Tom Kimche, financial adviser at Netwealth, suggested alternatives: "Outside of property, there are several other ways to gift which could be a better fit during your lifetime. For example, beyond the annual £3,000 gifting exemption, gifts from surplus income can often fall outside the scope of IHT if properly structured and documented."