Younger people faced with historically high housing prices and ongoing cost of living pressures may be hoping an inheritance will help them out.
Nearly one in four (23%) Gen Z (born between 1997 and 2012) say they are not prioritising retirement saving because they expect to inherit money or property.
This view is also common among Millennials (born between 1981 and 1996), with one in five (20%) of this generation saying the same, according to a Standard Life survey of 6,000 people conducted in June 2026.
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Grandparents who have benefited from house price increases and may be enjoying bumper pensions, and who are worried for their younger loved ones’ financial prospects, could feel pressure to give away their homes to grandkids now, in an attempt to reduce the risk of them paying inheritance tax later.
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Experts have said it’s trickier than just handing over the keys, however.
How much can I give away free of inheritance tax?
To quickly recap on the key inheritance tax rules – every homeowner has two inheritance tax-free allowances.
You have a nil rate band of £325,000 and there is a residence nil rate band of up to £175,000 when a family home is passed to direct descendants, including grandchildren, though this second allowance is tapered for estates above £2 million.
Married couples and civil partners can inherit each other’s allowances, meaning up to £1 million may be passed on by them after death before IHT becomes due.
Also, most gifts a person makes during their lifetime are exempt from inheritance tax – but the person must survive for seven years after giving it (these are known as ‘potentially exempt transfers’).
A gift can be money, property or possessions – anything that has value. A gift must reduce the value of the estate and you must include any loss incurred as part of the gift. For example, if a person sells their house to a child for less than it’s worth, the difference in value counts as a gift.
An outright gift is where value is transferred to another individual without conditions.
Losing legal control
Many people assume giving away their home – often one of their most valuable assets – is a straightforward way of reducing inheritance tax. The reality is often far more complicated.
Legally there are a number of things to consider.
When the original owner gives their property away, they lose legal control over it. This is true whether the original owner remains living in the property or not – but several factors mean it can be especially tricky if they continue to reside there.
Laura Walkley, partner and head of the private client department at TWM Solicitors LLP, said: “Even where there is complete trust between family members, circumstances and relationships can change over time. In a worst-case scenario, the original owner could lose their home.”
Four key scenarios could put the person giving away the property at risk, Walkley pointed out; disputes, debt, divorce and death.
- The donor and recipient could fall out, and the recipient may decide to evict the original owner or to sell the property.
- The recipient might also need to borrow against it, exposing the property to claims by creditors.
- If the recipient goes through a divorce, the property may be vulnerable to claims for financial provision by a former spouse.
- If the recipient dies before the person who made the gift, unless suitable arrangements are put in place, the property will pass under the recipient’s will or intestacy, potentially ending up in the hands of people the donor never intended to benefit.
Inheritance tax property gifting rules
Giving your home away while continuing to live in it is also one of the biggest inheritance tax misconceptions – it doesn’t automatically mean your loved one avoids inheritance tax.
Shaun Moore, tax and financial planning expert at financial advice firm Quilter, said: “If you gift a property but still benefit from living there, HMRC will treat it as a 'gift with reservation of benefit'. This means the property would still be counted as part of your estate for inheritance tax purposes.”
To avoid this, you would typically need to pay a full market rent to the new owner, plus your share of the bills. This creates its own complications and could generate an income tax liability for the recipient, who would also need to declare that rent on their annual tax returns.
You do not have to pay rent to the new owners if you only give away part of your property and the new owners also live at the property.
There’s normally no inheritance tax to pay if you move out and live for another seven years.
Capital gains tax problem
Grandparents with more than one property who want to give one away to a grandchild could also find there may be capital gains tax implications if the property is not the giver’s main residence.
Only a person’s private residence is exempt from capital gains tax. “So, if I gifted a buy-to-let, for example, the gift is viewed as a disposal for CGT purposes that realises any gain made,” said Moore.
This triggers an immediate CGT bill. Even if you receive no money for the property, you must pay capital gains tax on the difference between what you originally paid for it and what it is worth on the day you gift it.
Care costs
Permanently giving away your home could also create headaches if you come to need care in later life. You won’t be able to sell your home or use equity release, for example, to unlock some of your housing wealth to pay for your care.
At the same time, under deprivation of assets rules, local authorities could scrutinise gifts made later in life if they believe assets have been transferred primarily to avoid care costs.
Consequently the council may be reluctant to pay for your needs or even demand money back from the grandchild you gave the property to.
Alternatives to grandparents giving away property
Before taking the huge step of giving away your home (or another property) to your grandchildren, it is important to establish whether gifting property before death is even necessary.
Tom Kimche, financial adviser at Netwealth, said: “Outside of property, there are several other ways to gift which could be a better fit during your lifetime.
“For example, beyond the annual £3,000 gifting exemption, gifts from surplus income can often fall outside the scope of IHT if properly structured and documented.
“Larger gifts can also leave your estate for IHT purposes if you survive for seven years after making them.”
Structure is another important consideration. Gifts can be made directly or through relatively simple structures such as bare trusts.
“If you would like greater control and asset protection, discretionary trusts or Family Investment Companies (FICs) may be worth considering, though they add cost, complexity and additional tax considerations,” said Kimche.
