Transferring property to your children without future disputes between siblings

A parent wants to pass the family home to one of their children, but without leaving the others short-changed — and without a dispute over collation of the gift erupting years later in probate. There is a solution that is fair, legally sound and tax-efficient.
Transferring property to your children during your lifetime is a sensible step. You avoid the uncertainty of probate and give your family clarity. The problem arises when there are several children and only one of them is to receive the property — for instance because they already live in the house or care for the parents.
A simple gift to a single child carries a hidden risk: the children who received nothing may later, in probate proceedings, claim that the gift should be collated against their compulsory (statutory) share. A well-intentioned transfer can thus turn into a family court dispute years down the line.

When a parent gifts assets to one of their children during their lifetime, the value of the gift may be taken into account in probate. Subject to the statutory conditions, a child who received nothing may seek to have the gift collated against the share of the child who received it — the purpose of the institute being to fairly distribute what passed from the deceased into the family.
In practice this means tension between the children at exactly the moment when the family should be pulling together. And if the gift was not properly documented, or the siblings cannot agree on its value, the dispute can drag on for months or even years.

The proven way to pass the property to one child while fairly compensating the other is to split the transfer into two legal titles within a single agreed whole:
Illustrative scenario
A parent owns a house and has two children. The house is to go to the son, while the daughter is to receive an equivalent value in money. Instead of simply gifting the whole house to the son, the transfer is structured so that both children come out equal — and so that there is nothing to contest in the future.
1.    Gift deed for one share. One ideal half of the property is transferred to the son as a gift from the parent.
2.    Purchase contract for the other share. The second ideal half is transferred to the son under a purchase contract.
3.    The purchase price is paid to the sibling, not the parent. The son pays the purchase price for the benefit of the daughter. In this way the daughter receives her value and the son acquires the entire property.

Both children receive a comparable value, and the whole arrangement is clearly documented should later probate proceedings arise. The daughter receives her settlement immediately and in black and white. This significantly reduces the risk of a future dispute between the siblings.

A favourable regime applies to transfers within the family. A gratuitous acquisition (a gift) is, between relatives in the direct line and between siblings, generally exempt from income tax under Section 10(3) of the Income Tax Act. The same exemption also applies to the sum of money that one sibling provides to the other.

What to watch out for: for the purchase part of the transfer, the taxation of the income from the sale on the seller's side (the parent) must be assessed separately. Here the so-called time test of ownership is decisive. Whether and when this income is exempt depends on the specific holding period and the way the property has been used — which is why it pays to have the arrangement reviewed by a lawyer before signing, so that a tax liability does not catch you by surprise. The claim that „it is always entirely tax-free“ is a simplification that may not hold in some cases.

Some time always passes between the signing of the contracts and the registration of the ownership right in the Land Registry. And it is in this interim period that anything can happen — from the death of one of the parties to a complication at the registry. If the other sibling were handed the purchase price up front and the registration did not go through, an unpleasant situation would arise.
It is therefore advisable to place the money in an attorney's escrow. It works simply and securely:
1.    The money goes into a separate account. The purchase price is deposited into a dedicated escrow account held by the attorney, kept separate from their own funds.
2.    Release only once the conditions are met. The money is paid out to the other sibling only after the agreed conditions have been fulfilled — typically once the ownership right has been registered in the Land Registry.
3.    Certainty for both sides. The buyer knows they will not lose the money until they acquire the property. The recipient knows the money is already safely deposited and waiting for them.

Want to be sure?
We will prepare both the gift deed and the purchase contract, the application for registration in the Land Registry, handle the tax side, and arrange the attorney's escrow for the purchase price. All you do is choose a date to sign.