My late father put his £500,000 house in my sister’s name 14 years ago but continued living in it – will she face a hefty tax bill when she sells?


Fourteen years ago, my father put his house into my sister’s name.

My father carried on living in the house for 14 years, before sadly passing away on 24 December 2025.

Are there any tax implications for my sister when she sells the house for £500,000?

Implications: A This is Money reader’s late father put his house in his sister’s name 14 years ago

Jane Denton, of This is Money, replies: You have told me that your father did not leave a will. 

When someone dies without a will, their estate is divided up according to standard rules, known as intestacy law. The rules will allocate your estate to your family members in a strict order.  

When someone dies without a will, an administrator will be appointed to wind up their estate. This is usually the next of kin or a close relative.

To become the administrator, one of  you will need to submit an application to the Probate Registry for a grant of representation.

You also informed me that while your father lived in the house for the 14-year period, he did not pay rent. 

In some cases, transferring property to children can be a good way to pass on wealth. 

Many people want to make a lifetime gift to their loved ones to help them avoid having to shell out so much money for inheritance tax. 

However, the rules involved when gifting or transferring property to a child or other relative are complicated. 

This can have major tax implications for loved ones after a relative dies. 

A gift with reservation of benefit refers to a situation where someone gives away property, but still retains some right or benefit over it. 

For example, someone might give away their house to their children, but still want to live there. 

In your father’s case, he did continue living in the house and did not pay market rent for it. 

Your father continued to benefit from the house, even though he had transferred it to your sister. I sked two experts for their thoughts on your case.  

Phil Weston, founder founder of Berkeley Weston Ltd., says: This is one of the most common and costly misunderstandings in inheritance planning. 

Most people know about the seven-year rule for inheritance tax, but what catches families out time and again is something called a gift with reservation of benefit.

Put simply, if you give your house away but carry on living in it, HMRC doesn’t treat it as a genuine gift. 

Phil Weston is the founder founder of Berkeley Weston Ltd

Phil Weston is the founder founder of Berkeley Weston Ltd

In their eyes, you’re still getting the benefit of the property — a roof over your head — so they act as though you never gave it away at all.

It doesn’t matter that 14 years have passed. The seven-year rule that people rely on only applies to genuine, no-strings-attached gifts. 

The moment your father stayed in the house without paying a proper market rent, the clock stopped. 

As far as the taxman is concerned, that property was still part of his estate when he died on Christmas Eve 2025.

That means the full £500,000 value could be added to his estate for inheritance tax purposes. 

After deducting the available allowances, namely the £325,000 nil rate band and potentially the £175,000 residence nil rate band, there could still be a hefty inheritance bill at 40 per cent.

This trips up thousands of families every year. People think they are being sensible by putting their house in a child’s name early, but unless the parent genuinely moves out or starts paying full rent as a tenant, HMRC will see straight through it.

There is a second sting in the tail too. When your sister sells the property, she may also face a capital gains tax bill. 

Her taxable gain would be calculated from the property’s value when it was originally transferred to her, not what it is worth today. 

If house prices have risen significantly in those 14 years, that could be another unwelcome surprise.

The bottom line? Giving away your home while continuing to live in it is one of the oldest tricks in the book — and HMRC wrote the rules specifically to block it. 

Any family in this situation should get proper professional advice before doing anything.

Lucy Knowles, ​an associate in the tax and trusts team at Wilsons Solicitors LLP, says: The general rule that an asset given away will fall outside a person’s estate for inheritance tax purposes after seven years is subject to a number of exceptions, the most common being the gift with reservation of benefit rules. 

A gift made by someone who continues to benefit from the gift or use the asset given away for their own benefit is not a valid gift for inheritance tax purposes.

Your father may have transferred the legal and beneficial title to your sister, however, by continuing to live there for the remainder of his life, he retained a benefit in the property. 

Lucy Knowles, is an associate in the tax and trusts team at Wilsons Solicitors LLP

Lucy Knowles, is an associate in the tax and trusts team at Wilsons Solicitors LLP

Unless your father paid a market rate rent for during the entirety of his occupation, a gift with reservation of benefit will arise and the property will still form part of his estate for inheritance tax purposes.

The gift with reservation of benefit rules do not apply to capital gains tax. 

This means that for capital gains tax purposes, your sister would be treated as owning the property from the date it was transferred to her.

Capital gains tax is payable when someone sells or gives away their interest in an asset that has increased in value since they acquired it. 

If the asset was transferred as a gift, the value at the date of transfer will be used to calculate the gain. 

You can deduct costs of acquisition and disposal of the asset if relevant, along with any costs spent enhancing the value of the asset.

Each individual also has an annual exempt amount of £3,000 which can be used to offset any capital gains made.

Principal private residence relief provides relief from capital gains tax when a person sells their main home. 

The relief automatically applies if you only own an interest in one home and have lived in it throughout your entire period of ownership.

Your sister may be eligible for partial principal private residence relief if she has occupied the property as her only or main home for part of her period of ownership.

There are also specific rules that allow for the relief to still apply during certain periods of absence. The last nine months of ownership are exempt, regardless of use.

If capital gains tax is payable, a return will be required and the tax paid within 60 days of completion.

I recommend your sister seeks specialist advice from a solicitor to ascertain her tax liability.

Do you have a question about property and tax? Get in touch: editor@thisismoney.co.uk 

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