Why a “Free Gift” Can Still Cost You Tax
Many Landlords and homeowners think giving away property means giving away the tax bill too.
But under UK tax rules, that’s rarely the case.
🎥 Watch: Capital Gains Tax on Gifting Property Explained (2025/26)
If you prefer to watch instead, here’s my video where I explain how CGT applies when you gift a property, how market value is used, and what reliefs can reduce your bill.
Then keep reading for worked examples and practical planning tips.
Even when no money changes hands, HMRC still treats the gift as if you sold the property at its full market value — which can trigger a Capital Gains Tax (CGT) bill right now, not later.
Here’s how CGT works when you gift property to a family member — and how to avoid the most common mistakes.
What Is Capital Gains Tax (CGT)?
CGT applies when you dispose of an asset that’s increased in value.
“Disposal” includes Selling, Swapping, or Gifting.
For property:
- Residential rate: 18% (basic-rate taxpayers) or 24% (higher/additional).
- Annual exemption: £3,000 (2025/26).
- Due date: Report and pay within 60 days if it’s UK residential property.
How HMRC Values a Gift
Even if you gift a property for £1, HMRC uses the open market value at the date of the gift.
That’s what they’ll use to calculate your gain.
Example:
- Purchase price £150,000
- Market value today £400,000
- Gain = £250,000
- After £3,000 allowance → £247,000 taxable gain
If you’re a higher-rate taxpayer, the CGT could be £59,280 (24% of £247,000).
Example 2 – Mixed Rate Taxpayer
If you still have some basic-rate band left, part of the gain may be taxed at 18% and the rest at 24%.
Example:
- Gain £60,000
- £20,000 falls in the basic-rate band → £3,600 CGT (18%)
- £40,000 taxed at higher rate → £9,600 CGT (24%)
- Total = £13,200 CGT
What If There’s a Mortgage?
If the recipient also takes over the mortgage, HMRC treats that part as a sale — not a gift.
That can further increase the tax complexity and may trigger Stamp Duty Land Tax (SDLT) for the new owner.
Always get advice before transferring mortgaged property.
Reliefs That May Reduce CGT
- Private Residence Relief: Usually covers your main home, not rentals.
- Lettings Relief: Only applies in limited cases where you lived in the property before letting it.
- Gift Hold-Over Relief: Available for some business assets or properties in Trusts — not standard buy-to-lets.
Case Study
A Landlord gifts a rental worth £350,000 bought for £200,000.
Gain = £150,000.
After £3,000 allowance → £147,000 × 24% = £35,280 CGT.
Had they waited and sold later under a Trust or company structure, they could have deferred or reduced the tax.
FAQs
Q: Does my child pay CGT when receiving the Gift?
A: No — CGT is charged to the person making the gift.
Q: Can I pay the Tax in instalments?
A: Only in very limited cases (e.g. under certain Trust arrangements). Normally, payment is due within 60 days of completion.
Q: What if the property is abroad?
A: UK residents are taxed on worldwide gains, but foreign property can also create local tax liabilities — get advice before transferring.
Key Takeaways
- Gifting property counts as a disposal at market value.
- You may owe CGT even if no money changes hands.
- Reliefs are limited for rental or investment properties.
- If a mortgage is involved, SDLT and extra tax can arise.
- Always calculate before gifting — not after.
Final Word
A property gift can be generous — but it’s rarely tax-free.
If you want to help your family without triggering unnecessary tax, timing and structure matter.
Related reading:
If you’re planning to gift property to your children or family, see our detailed guide — Can You Gift a Property to Your Children Tax-Free? — to understand the Inheritance Tax, 7-year rule and “gift with reservation” traps that often catch families out.
Capital Gains Tax is only half the story when it comes to gifting property.
Inheritance Tax can still apply years later — and that’s where HMRC’s 7-year rule comes in.
👉 Read next: Inheritance Tax and the 7-Year Rule – What You Need to Know
📞 Book a Property Tax Review today to see what options are available before you make the move.