Many children unwrapped an early Christmas present this year as parents and grandparents transferred valuable UK real estate down the generations. The catalyst for this has been concern that the 26 November Budget might introduce a gift tax or extend the period that donors must survive gifts for UK inheritance tax purposes, prompting families to act sooner rather than later. With property values still subdued in many segments, depressed valuations have further encouraged accelerated gifting.
That said, gifting is not a one‑size‑fits‑all solution. Both tax and non‑tax factors require careful evaluation, including control, access to income, funding of outgoings, family dynamics and asset protection.
A central tax consideration is the “gift with reservation of benefit” regime. Broadly, if donors continue to enjoy any benefit from a gifted property—such as occupying it rent‑free or receiving rental income—the gift may be treated as ineffective for inheritance tax purposes, bringing the property back into the donor’s estate on death. To be effective, the donees must have bona fide possession, and the property must be enjoyed to their exclusive benefit during the relevant period.
There are some helpful statutory carve‑outs. In particular, joint ownership (which may require joint occupation in some cases) can, in the right circumstances, avoid a reservation of benefit. These structures may often better align with real‑world family usage than outright transfers to children, while still managing inheritance tax risk.
Joint ownership—whether between generations or among siblings—can create friction over funding, occupation, sale and succession. A clear co‑ownership agreement that addresses decision‑making, cost sharing, dispute resolution and exit mechanics can often help preserve family harmony and safeguard value.
Our Real Estate and Private Client teams work closely together to provide a holistic approach to all legal and tax matters related to real estate structuring, holding and gifting and we would be pleased to advise further on this.
