Nearly every other first-time buyer receives some financial assistance from their parents. And the scale of that helping hand from the ‘Bank of Mum and Dad’ is staggering: something like £15 billion a year in the UK, according to the Institute of Fiscal Studies.
But cash gifts or mortgage support are not the only ways to help the next generation. If you are lucky enough to be asset-rich and own land, vacant buildings or a second home, transferring property to a child is another option.
“People sometimes have a separate outbuilding, such as a gite or annex, which they would like to gift. Or the sub-division of a farm or large garden could provide the site for a child to build their own home,” says Eve Wilson, of KWW’s conveyancing team.
“However, you should first consider your own needs, and how these may change over time. Transferring property to a child can also raise different issues to a traditional conventional transaction, so it is important to get the right professional advice, especially on the tax issues.”
Deed of transfer
The administrative process of transferring property to an adult child is like any other transfer. You and any other legal co-owner of the property will need to complete a deed of transfer.
This is usually quite straightforward; however, it is also necessary to complete the correct formalities at the Land Registry or the legal title will not pass. Failing to do this could cause problems much later for the administrators of your estate and for your child.
You may not need all the searches and enquiries you would on a regular transaction. After all, this is a property you already know well, but you should discuss your plans with your solicitor at an early stage.
A quick review of your title means you can address any concerns before passing your property on. If this is not possible in the time frame, at least your children will know about any issues and what they can do. For example, if you intend to transfer surplus garden land so your child can build on it, it is important to know of any legal restrictions which could affect this.
If your property is subject to a mortgage, your lender will usually require you to pay it off before any transfer, although there may be exceptions. For example, if the transfer is only of part of the land mortgaged, they may agree to release that part.
In any case, speak to your lender and discuss the proposed arrangement with your solicitor early on. They will need to ensure the lender’s requirements are satisfied and the charge over the transferred land released.
Transferring property to more than one child
It is not unusual for two or more people to be joint owners, and there should be no difficulty transferring property to more than one adult child. However, this can often be more complicated.
For example, will you retain any interest in the property? Should your children share in any future profits from rent or the property’s sale, equally or in defined shares? If one of them dies, should their share pass to their beneficiary or should the survivors own the whole?
The answers will determine whether you transfer the property to them as joint tenants or tenants in common, and the need for any additional provisions. This, in turn, will determine how they can deal with the property in the future.
Co-ownership is possible through a trust, and our solicitors at KWW can advise on the appropriate legal structure to reflect the intended relationship between the new owners. Your children may mutually agree to change the arrangement later.
Clarity at the outset can avoid confusion and head off disputes, and your solicitor can incorporate a declaration of trust in the transfer, reflecting your intentions and setting out the basis of ownership.
Alternatively, you could transfer the property to a limited company with your children holding shares reflecting their beneficial interest. There are tax implications and an additional administrative burden, which you should discuss with a specialist.
Transferring property to a minor
If your child is under 18, you cannot transfer property to them directly as, legally, a minor cannot own land. Instead, you will need to use a trust. The most common arrangement is for two trustees to hold the legal estate on a bare trust on the child’s behalf. The trustees’ names will appear as the registered owners at the Land Registry but your solicitor should protect the child’s interest by applying for an appropriate restriction.
Under this arrangement, the child has the right to become the legal owner, with full power over the property, when they turn 18.
Other arrangements are also possible, for example, if you do not want your child to have full control when they reach 18, or if your child is vulnerable and requires additional safeguards.
When your child becomes your neighbour
Separating a property or adding a development project will also be complex, particularly as this is likely to require planning permission and specialist design input. So, it is easy to overlook the legal basis of ownership, which would be a mistake.
Informal arrangements may work well initially but a more formal approach avoids problems later. For example, your home should retain adequate rights for access and services over the part being transferred.
You may also want to include restrictions on its use, such as preventing further development if your child sells up and moves away.
Any prospective purchaser or lender will want reassurance there are no outstanding legal issues. Failing to complete a formal transfer and register it in a timely manner could result in delay or even scupper future transactions.
Consider the tax implications carefully
Transferring property to your children, or grandchildren, can be a tax-efficient way of passing on assets, but it can also be something of a minefield.
It is very important to discuss your plans with your tax adviser alongside your solicitor as early as possible to avoid problems later.
How we can help
Every family is unique, and the suitability of any arrangement will depend on your circumstances and those of your offspring. Discussing your plans with a solicitor who fully understands both the legal aspects and your personal situation can help you make the right choices.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.