Can I Give All My Assets to My Children and Avoid Inheritance Tax?

"There is no such thing as a good tax."  —  Winston Churchill

While Churchill may not have wrestled with inheritance tax (IHT), his words still hold weight. It’s a question we hear regularly from clients:

“Can’t I just give everything to my children and avoid the tax?”

It sounds like a good idea, doesn’t it? But in truth, giving away your home, your savings, or your assets is rarely as straightforward as it seems. There are rules, risks, and surprising consequences. So, let’s take a close and honest look at how this works — what you can do, what you shouldn’t, and what actually helps.

The Golden Rule: No Benefit After the Gift

Yes — you can give assets to your children and avoid IHT. But two conditions must be met:

1. You must survive 7 years after the gift.

2. You must not benefit from the gifted asset in any way.

This is where many people go wrong.

For example, let’s say you transfer your home to your children but continue to live in it rent-free. To HMRC, you haven’t really given it away. This is known as a Gift with Reservation of Benefit (GROB), and it means the full value of the home still counts toward your estate for inheritance tax purposes — even if the legal title is in your child’s name.

This doesn’t just apply to homes. If you give away a rental property but keep collecting the income, that’s a GROB too. So unless you fully relinquish the asset and any benefit from it, the taxman still sees it as yours.

Real Story: When Good Intentions Backfire

Richard and Anne, a couple in their early 70s, owned a beautiful home in Kent worth £850,000. Worried about inheritance tax, they transferred it to their daughter’s name. She agreed they could stay in the house for life.

They assumed the job was done.

What they didn’t realise is that, by staying there rent-free, they’d triggered the GROB rules. HMRC still viewed the home as theirs. If Richard or Anne died within seven years, the house would remain fully taxable. No savings. No benefit. Just unnecessary risk.

Worse, if their daughter divorced, fell into debt, or passed away before them, they could be forced out of their own home.

How to Do It Right: Legal Workarounds That Actually Work

All is not lost. There are ways to give away assets effectively — if you structure things properly.

1. Pay Full Market Rent

You can live in a home you’ve gifted to your children, if you pay them a full market rent.

This removes the GROB issue. However:

• The rent must be reviewed regularly to ensure it reflects current market rates.

• Your children must declare and pay income tax on the rent they receive.

• If you stop paying, the house immediately falls back into your estate for IHT.

It's a viable option — but it requires long-term financial planning and professional advice to get the details right.

2. Gift a Share of the Property & Co-Occupy

Another option is to gift part of the home — say, 50% — to your child and live there together.

As long as:

• You both share running costs proportionally.

• Your child lives there continuously with you.

Then, after seven years, your gifted share is outside your estate for IHT.

This arrangement works well in multi-generational households and is far more tax-efficient than many realise.

3. Gift Property You Don’t Live In

If you’re not living in the property — say it’s a former home or a rental — you can gift part or all of it without triggering GROB rules.

In fact, there’s a little-known advantage here. You can:

• Gift 50% of the rental property to your children.

• Still receive 85% of the rental income (or more), by agreement.

• Avoid the GROB rules, because you no longer occupy the property.

Of course, you’ll need to declare and pay income tax on the rent you receive. But this can be a smart way to reduce your estate’s taxable value without sacrificing income.

A Practical Tip

If you rely on rental income but want to plan ahead, consider gradually gifting shares of your investment property while keeping the majority of the income. This lets you:

• Lower your estate’s IHT liability.

• Retain financial independence.

• Avoid disrupting your lifestyle.

Just be aware of:

• Capital Gains Tax (CGT) if the property’s value has increased.

• Stamp Duty Land Tax (SDLT) if there's a mortgage involved.

• The need for careful legal drafting and coordination with HMRC.

What About Selling My Home to My Children for £1?

Yes — you can do this. But it won’t help with tax.

HMRC will treat the transaction as a partial gift, and the difference between market value and £1 will be taxed accordingly. It’s not a loophole — it’s a trap.

Your child may still have to pay stamp duty, and any future capital gains will be based on the original market value — not the £1 price tag.

Other Smart Ways to Gift Without Triggering IHT

Annual Exemption

You can gift £3,000 per year tax-free. If unused, it rolls over one year — giving a total of £6,000 in the right conditions.

Regular Gifts from Income

If you have a stable income and the gift doesn’t affect your lifestyle, you can make regular gifts without IHT implications. Keep clear records, and consider setting up standing orders for simplicity.

Wedding Gifts

These are also exempt:

• Up to £5,000 for a child.

• £2,500 for a grandchild or great-grandchild.

• £1,000 for anyone else.

Trusts

Trusts can be powerful tools for reducing inheritance tax — but they come with complexity. You’ll want proper legal advice before going down this path. Done well, they can give you control over how and when assets are passed on while also protecting them from divorce, bankruptcy, or early death of a beneficiary.

Final Thought: Think Long, Not Just Tax

Inheritance tax is emotional. It’s tied up in family, legacy, and the desire to do the right thing. But good intentions are not enough.

Whether you're giving away a house, setting up a trust, or gifting money, it’s not just about avoiding tax. It’s about protecting your home, your relationships, and your peace of mind.

So yes, you can give your assets to your children. But you need to do it the right way, with foresight and legal guidance. It’s not worth risking your security — or your family harmony — for a tax saving that may never materialise.

Need expert help to get it right?

Cannon Accountants are here to help you navigate the maze with clarity, confidence, and a long-term strategy that works for you and your family.

Don’t just plan to avoid tax — plan to protect what matters.

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