House Gifting - How does it work?

Question

A friend of mine gifted a house to her daughter [meaning her daughter didn't have to pay]. I wondered how this would work because I am thinking about gifting one.

Answer 1

You sign your deeds over.Make sure it is stated that you live the rest of your life in it.

Answer 2

If you are in the UK, be very careful. You do not say whether or not you are living/wish to continue living in the house of which you are thinking of transferring ownership. If this is so, you will have to pay the new owner a commercial rent to live there (on which they will pay tax), otherwise the value of your house will be clawed back into your estate for Inheritance Tax purposes. Also, should you fall out with the person getting the house, or that person get a divorce, you could lose your home.
If the house is not your main residence, for tax purposes when you transfer it, it is treated as though the house is sold at market price. So even though no money changes hands, you will be charged Capital Gains Tax (rate band 22% or 40% depending on your other circumstances).
Get advice from a good solicitor, and think about a Trust.

Answer 3

It sounds nice to gift a house to a loved one but there is a big problem with doing it and that problem is taxes. I know that people try to avoid probate taxes by giving the house to their heirs before they die but that just means that the basis cost (the amount paid for the house by the giver) is transferred to the person(s) the house is given to. That means that when the heirs sell the house, the heirs have to pay capital gains tax on the difference between what the giver paid for the house and what the heirs sold it for. (Right now long term capital gains tax is 15%-I believe) Usually that is a lot if the house has been held for many years. If the giver leaves it to the heirs in their trust, there is no probate tax and the heirs receive the house at a "stepped up basis". That means that the heirs get a new basis cost for the house that is set when they inherit the house not when the giver bought it. That means that there is no capital gains tax at all. And if the property is left in a living trust, there are no probate taxes either.
I do know that when my uncle passed away a few months ago and left property, the property just passed to the heirs with no tax at all because he had a trust. And the heirs basis cost is $300,000 instead of the $35,000 that was my uncle's basis cost when he inherited the property from his parents whose original basis cost was the $600.00 that they paid for the house in the 1930's.
I have heard ads for LegalZoom.com where a person can make their own trust for a few hundred dollars, but even paying a trust attorney a few thousand dollars now to get a trust done can save tens of thousands of dollars in taxes later.
Before doing anything like this, PLEASE talk to a tax attorney, trust attorney, estate planning attorney, or a CPA. It will save your family headaches later and probably lots of money too.