Thinking of giving a property to your children while you’re still alive?
Whether it’s a second home, a buy-to-let, or even your main residence — gifting property has tax consequences.
Watch my full video on gifting property to children — where I explain the CGT, IHT and common mistakes to avoid:
Here’s what you need to know before making a move.
1. It’s Still a Disposal (Even if No Money Changes Hands)
HMRC treats a property gift as if you sold it at market value. Even if no money changes hands, tax rules apply.
That means:
- Capital Gains Tax (CGT) may be due now.
- Inheritance Tax (IHT) may still apply later.
2. Capital Gains Tax (CGT) When You Gift Property
CGT is usually the first hurdle.
- The gain is based on the current market value, not what you originally paid.
- CGT allowance (2025/26): £3,000.
- Rates: 18% (basic rate taxpayers), 24% (higher/additional rate taxpayers) on residential property.
Example:
- Bought for £120,000 → now worth £300,000.
- Gain = £180,000 – £3,000 allowance = £177,000 taxable.
- At 24% → £42,480 tax bill just for giving it away.
3. Inheritance Tax (IHT) Still Applies for 7 Years
Gifting doesn’t remove the property from your estate immediately.
- It’s classed as a Potentially Exempt Transfer (PET).
- If you die within 7 years, the gift is pulled back into your estate.
- Full 40% IHT if you die within 3 years.
- Taper relief reduces the tax between years 3–7.
4. What If You Still Live in the Property?
This is where many people get caught out — especially with their main home.
I recently spoke to someone in this exact situation:
- He owns his main home with his wife.
- They want to gift it to their daughter.
- But they plan to keep living there.
That’s a red flag. Unless they move out or pay full market rent to their daughter, HMRC treats it as a Gift With Reservation of Benefit.
That means:
- The property stays in their estate.
- The 7-year IHT clock doesn’t run.
- No tax saving — and possibly double trouble later.
5. Should You Use a Trust Instead?
Transferring property into a Trust can:
- Protect the asset.
- Control who benefits.
- Help with IHT planning.
But downsides include:
- Immediate CGT may still apply.
- Trusts over the nil-rate band may trigger lifetime IHT.
- Ongoing reporting and admin.
Trusts can work — but only with the right advice.
Related Reading:
If you’re thinking about selling instead of gifting, here’s what you can (and can’t) claim to reduce your CGT bill. Read our latest blog – What Expenses Can You Claim When Selling a UK Rental Property?
If you’re considering using a Trust instead of a direct gift, this blog gives a clear explanation on different Types of Trusts – Understanding Trusts: What They Are and Why They Matter
Final Thoughts
Gifting property is not just about generosity. It’s a complex tax decision.
✅ Done right, it can reduce your family’s future tax burden.
❌ Done wrong, it can trigger big tax bills now and later.
📞 Need tailored advice? Book a clarity call or full property tax review with Grace Certified Accountants today.