Passing on your money and property

In this section:

Planning to pass on your money or property
Giving money and property to your children and grandchildren
An introduction to UK family trusts
Tax on a pension you pass on or inherit
Giving to charity in your will

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Planning to pass on your money or property

Planning to pass on your money or property

Planning your finances in advance should help you to ensure that when you die everything you own goes where you choose. This could help you provide a sound financial future for your family. Planning ahead can also ensure that you make tax efficient decisions about how your money and property are passed on.

Making a will

Making a will is the first step in ensuring that your estate is shared out exactly as you want it to be.

If you don't, there are rules for sharing out your estate (called the Law of Intestacy) which could mean your money going to family members who may not need it, with your unmarried partner, or a partner with whom you are not in a civil partnership, receiving nothing at all.

If you leave everything to your spouse or civil partner who is domiciled in the UK there'll be no Inheritance Tax to pay because they are classed as an exempt beneficiary.

Or you may decide to use your tax-free allowance to give some of your estate to someone else, or to a family trust (see the section on 'Trusts' below).

Financial reasons to make a will - Directgov website

More about making a will from the Citizens Advice Bureau (CAB) website

Age Concern website factsheet - Making a will

Joint and common ownership of property

If you and your spouse or civil partner own your home as 'joint tenants' then the surviving spouse or civil partner automatically inherits all of the property.

If you are 'tenants in common' you each own a proportion (normally half) of the property and can pass that half on as you want. Different terms are used in Scotland: joint tenants are called 'joint owners', tenants in common are called 'owners in common'. In Northern Ireland the terms are as for England and Wales but a tenant in common can also be called a 'coparcener'.

If you want to change the way you own your property a solicitor will be able to help you.

Find a solicitor on the Law Society website

More about civil partnerships on the Women & Equality Unit website

Gifting your home to your children

If you want to give your home away to your children while you're still alive, you might want to bear in mind that:

Gifts to your children - unlike gifts to your spouse or civil partner - aren't exempt from Inheritance Tax unless you live for seven years after making them. The amount of tax due might be reduced by taper relief if the gift was made more than three years before the death and the value of the gift was over the Inheritance Tax nil rate band.
If you keep living there without paying a full market rent (which your children pay tax on) it's not an 'outright gift' but a 'gift with reservation' so it's still treated as part of your estate, and so liable for Inheritance Tax.
From 6 April 2005 onwards you may be liable to pay an Income Tax charge on the 'benefit' you get from having free or low cost use of property you formerly owned (or provided the funds to purchase) but not if you have elected for the property to form part of your estate for Inheritance Tax purposes.
Once you have given your home away your children own it and it becomes part of their assets; so if they are bankrupted or divorced, your home may have to be sold to pay creditors or to fund part of a divorce settlement.
If your children sell your home, and they are not living in it as their main home, they may have to pay Capital Gains Tax (CGT) on any increase in its value. (CGT is a tax on capital gains. A gain is an increase in value.)

Giving money and property to your children and grandchildren

Capital Gains Tax relief when selling your home - Directgov website

More about Income Tax charges on previously owned property

Tax implications of downsizing to a smaller property

If you decide to downsize to a smaller property and give away the proceeds of the sale of the larger property, these gifts may qualify as:

'potentially exempt transfers' (PETs), so they wouldn't be taxable unless you die within seven years
part of your annual exemption in £3,000 chunks each year

For example, if you give £10,000 away, £3,000 will be exempt under your annual exemption (plus any unused annual exemption from the previous year) and £7,000 will be a PET (if there is no additional annual exemption carried over from the previous year).

If you give away the proceeds of the sale of your property to charity, it is exempt from Inheritance Tax.

More about gifts and Inheritance Tax exemptions on the Directgov website

Trusts

You may decide to use a trust to pass assets to beneficiaries, particularly those who aren't immediately able to look after their own affairs.

If you do use a trust to give something away this removes it from your estate, provided you don't use it or get any benefit from it. But, bear in mind that gifts into trust may be liable to Inheritance Tax and Capital Gains Tax (but the gain might be deferred until a later date). Trusts are complicated and it's best to get specialist professional advice.

An introduction to UK family trusts