Transfer of Equity and Inheritance Tax UK: Adding or Removing Someone from the Title

Updated: 01 June 2026 • Reading time: 9 min

A transfer of equity — adding a child, partner, or family member to the title of your home, or transferring your share to them — is one of the most common strategies people consider for reducing inheritance tax. It is also one of the most frequently misunderstood. Done correctly, and with the right timing, a transfer of equity can take a property outside the estate after seven years. Done incorrectly, it can trigger a gift with reservation of benefit — trapping the property in the estate for IHT purposes permanently. This guide sets out the rules on IHT, CGT, SDLT, and care-funding deprivation — and points to safer alternatives where appropriate.

What Is a Transfer of Equity?

A transfer of equity is a legal process by which the ownership of a property changes — either by adding a new owner to the title alongside the existing owner, removing an existing owner from the title, or transferring the entire title from one owner to another. It is registered at HM Land Registry and requires a conveyancer or solicitor where a mortgage is involved (because the lender must consent to any change in the ownership of the security).

For inheritance tax planning, the most common forms are:

• Parent transferring a share (e.g. 50%) to an adult child while continuing to live in the property
• Parent transferring the entire property to an adult child (and either moving out or remaining as a tenant)
• Adding a partner or spouse to the title as joint tenant or tenant in common, with a view to using the survivorship rules or nil-rate bands

IHT Treatment: Potentially Exempt Transfer and the Seven-Year Rule

A transfer of equity is a gift for inheritance tax purposes. More specifically, it is a potentially exempt transfer (PET) — provided the donor is an individual and the recipient is another individual (not a trust). A PET becomes fully exempt from IHT if the donor survives for seven years from the date of the transfer.

If the donor dies within seven years, the gift is brought back into the estate. The amount brought back is the open market value of the gifted equity at the date of transfer (not the value at death). IHT is charged at the current rate (40% above the nil-rate band). However, taper relief reduces the effective IHT rate if death occurs between three and seven years after the gift:

• 0–3 years before death: full rate (40%)
• 3–4 years: 32% (20% reduction)
• 4–5 years: 24% (40% reduction)
• 5–6 years: 16% (60% reduction)
• 6–7 years: 8% (80% reduction)
• Over 7 years: nil (fully exempt)

Taper relief applies to the tax, not the value of the gift — and only where the total cumulative PETs in the relevant period exceed the nil-rate band (£325,000 in 2026).

The Reservation of Benefit Trap: Why Most Transfers Fail

The most serious IHT risk in transfer-of-equity planning is the gift with reservation of benefit (GROB) rules under the Finance Act 1986, s.102. If a donor makes a gift of property but continues to enjoy a benefit from it, the property is treated as still forming part of the donor’s estate for IHT — as if the gift had never been made. The seven-year PET clock does not run for a GROB.

The GROB rules bite in transfer-of-equity planning when:

• A parent transfers a share in the family home to a child but continues to live there without paying a market rent to the child. The parent is benefiting from the gifted share (in the form of rent-free occupation) — classic GROB.
• A parent transfers the entire property but remains living there at a below-market rent. If the rent is not a full commercial rent, the benefit (the discount on market rent) taints the entire transfer as a GROB.
• The donor retains any other benefit connected with the property — e.g. retaining a right to use a specific room, or continuing to use and insure the property as their own.

The only way to avoid the GROB rules when transferring equity in the family home is either to:

1. Move out of the property permanently at the time of the transfer, so the donor retains no benefit from it.
2. Pay a full market rent to the new owner(s) from the date of the transfer onwards. The rent must be reviewed and maintained at market rates — a token or nominal rent does not suffice.

Note that even if a market rent is paid, income tax consequences arise for the recipient: the rent received is taxable income, and the arrangement must be properly documented.

Pre-Owned Assets Tax (POAT): The Backup Anti-Avoidance Rule

Even where the GROB rules technically do not apply (for example, because the donor moved out and later moved back in), the pre-owned assets tax (POAT) charge under the Finance Act 2004, s.84 and Schedule 15 may apply. POAT is an annual income tax charge on the benefit a donor receives by living in, or otherwise enjoying, property they previously owned. It is HMRC’s secondary anti-avoidance mechanism to catch schemes that escape the GROB rules on a technicality.

Donors caught by POAT have the option to elect back into the GROB rules — which means the property is included in the estate for IHT on death instead of being subject to the annual POAT income tax charge. Neither outcome is ideal; the correct approach is to plan the transfer to avoid both charges entirely.

Stamp Duty and Capital Gains Tax

Two further taxes must be considered before proceeding with a transfer of equity:

Stamp Duty Land Tax (SDLT): SDLT is charged on the “chargeable consideration” for the transfer, which includes any cash paid and the value of any mortgage debt assumed by the recipient. If the property is transferred with no cash and no mortgage, SDLT is nil. If the recipient takes on a share of the mortgage, SDLT is charged on that mortgage share using the standard or higher rates (the 3% additional dwelling surcharge may apply if the recipient already owns property).

Capital gains tax (CGT): For the transferor’s main residence, Principal Private Residence (PPR) relief usually eliminates CGT on any gain up to the date of transfer. For a second home or buy-to-let, the transfer is a disposal at market value — CGT is payable on the gain, even with no cash consideration. Since October 2024, CGT rates on residential property are 18% (basic rate) and 24% (higher rate). From 6 April 2025 the £3,000 CGT annual exempt amount applies.

Safer Alternatives to Transferring Equity

Given the GROB risks, the following alternatives are often more effective:

• Sever the joint tenancy and hold as tenants in common. If a property is owned jointly, severing the joint tenancy to hold as tenants in common allows each owner to leave their share by will — enabling nil-rate band and RNRB planning without any immediate gift or GROB risk. This costs very little (a notice of severance and Land Registry update) and has no immediate tax consequences.
• Use the Residence Nil-Rate Band effectively. The RNRB (up to £175,000 per person in 2026) already shelters a significant portion of a family home passed to direct descendants on death. Combined with the transferable RNRB from a deceased spouse, a couple can pass up to £1m free of IHT (£325,000 + £325,000 NRB, plus £175,000 + £175,000 RNRB). For many families, lifetime transfers of the home are unnecessary.
• Life insurance written in trust. A life policy written in trust for family members does not form part of the estate and can be structured to pay out an amount equal to the expected IHT bill. This eliminates the IHT problem without giving away the asset during lifetime.
• Downsizing and gifting the proceeds. Selling the family home and gifting the cash proceeds starts the seven-year PET clock on liquid assets — without the GROB risk that arises when continuing to live in a gifted property. The donor can then rent or buy a smaller property in their own name.

Frequently Asked Questions