Transfer By Way Of Gift

A Transfer by way of gift, sometimes called a deed of gift, describes a transaction whereby the owner of a property entirely relinquishes his interest in a property to another otherwise than for valuable consideration. "Valuable consideration" means anything of value, such as cash, assets, services or the assumption of debt. To be a gift the transfer must also be made by the owner of his own free will, i.e. not as a result of a court order for example. This guide deals only with transfers by way of gift.

Gifts should not be confused with similar transactions such as transfers of equity ( where after the transfer at least one owner remains on the title) or assents, where a property is transferred to a beneficiary in order to give effect to the instructions in the will of the deceased owner. These types of transactions are dealt with elsewhere on this site.

Why Make a Gift?

There could be any number of reasons why one person might gift a property to another, perhaps a spouse wishing to protect the other's rights in the matrimonial home, a parent wishing to give a child an early inheritance or it could be an attempt to avoid Inheritance Tax (IHT).

Tax Implications When Making a Gift

A serious discussion of the taxation issues surrounding the making of a gift is beyond the scope of this article and if you are contemplating such a transaction you should consider obtaining specialist tax planning advice however it is worth noting that if the donor (the giver of the gift) dies within 7 years of making it the gift may still be subject to Inheritance Tax.

What Do I need to do to Gift my Property?

You will need to transfer ownership of the legal title to the donee (the receiver of the gift). There are a few steps that need to followed. Where the title is registered at Land Registry you should obtain Official Copies of the register to check the current ownership status and to check whether there is a mortgage or other debt secured on it. You may find that the title is unregistered, that is to say no application to register the land at Land Registry has ever been made. If you do find this then we would urge you to instruct a solicitor to continue with the gift.

If the land is registered then you will need to check the proprietorship register to make sure that whoever you think owns the property actually does and check the charges register to see whether there are any debts secures on the property. If there are, you will not be able to gift it without repaying them.

Transferring Ownership

Once you are satisfied as to who the current owners are and that there are no debts secured against the property or that you can repay them you will need to complete form TR1 from the Land Registry. This is the document which when properly completed and signed and presented to Land Registry will allow them to change the names in the Proprietorship Register to the names of the new owners. The TR1 must be signed by the outgoing owners whose signatures must be witnessed.

Once completed an application must be made to the Land Registry to register the TR1. The application form to be used is form AP1. If any party is not represented by a solicitor or licensed conveyancer then in addition form ID1, which needs to be signed by a solicitor or licensed conveyancer, must be submitted for each unrepresented party.

Insolvency Considerations with a Deed of Gift

It is important to understand that giving away property as a gift is not an effective means of avoiding creditors. Where a property is transferred for less than its market value and the transferor is then bankrupt within the next 5 years the official receiver or trustee in bankruptcy may have the power to reverse the transaction should he consider that the intention of the transfer was to place the property beyond the reach of the transferor's creditors. Obviously where the transfer is to a spouse or civil partner or family member of the transferor this will strengthen the case against him.

If the transfer is overturned then the property will become an asset of the bankruptcy estate and will be sold for the benefit of the creditors. It is possible to transfer ownership of the property to a spouse or family member when the owner is bankrupt but full market value must be paid.

Occupation after Gifting a Property

Often when a person gifts a property they will want to continue to live in it afterwards. This might happen where for example a parent decides to gift his or her home to a child with the intention, if the parent lives for more than 7 more years, of avoiding inheritance tax. In this case the parent will want to ensure that he or she retains the right to live there after the transfer. This can be done by the child granting the parent a lease for life. The law converts a lease for life to a 99 year lease which is terminable on the death of the tenant. The danger here is that such a lease is an equitable interest, This means that it will be overreached by a sale of the property by trustees, so if the property is sold by the child (even if he or she owns it alone he or she can appoint another trustee for the purpose) then the parent must leave.

It is possible for the child to grant the parent a legal lease for a fixed term of years. This lease will survive a sale of the property. It will also survive the death of the parent however and will have value for IHT purposes. The value will depend on the number of years remaining on the lease therefore it is necessary to try and estimate how long the parent will survive so as to minimise the value of the lease on death. Under estimate of course and the lease will expire before the death of the parent.

When wanting to protect a right of occupation following a gift independent legal advice should be sought.