Gifting property to children is one of the most complex areas of UK tax. Get it wrong and you could face unexpected tax bills or fail to achieve your goals. Here’s what you need to know.
For the wider cluster covering thresholds, gifting strategies and IHT planning routes, use the main Inheritance Tax hub.
Tax Overview When Gifting Property
Three Taxes to Consider
| Tax | When It Applies | Rate |
|---|---|---|
| Inheritance Tax (IHT) | If you die within 7 years | 40% above nil-rate band |
| Capital Gains Tax (CGT) | On any gain since purchase (non-main home) | 18-24% |
| Stamp Duty (SDLT) | If child takes on mortgage | Standard rates |
The 7-Year Rule
Gifting property is a “potentially exempt transfer” — if you survive 7 years, it’s outside your estate. If you die sooner:
| Death After Gift | IHT Rate Payable |
|---|---|
| 0-3 years | 40% |
| 3-4 years | 32% |
| 4-5 years | 24% |
| 5-6 years | 16% |
| 6-7 years | 8% |
| 7+ years | 0% (fully exempt) |
Gift with Reservation of Benefit
This is the critical rule that catches most people.
What Counts as Reservation of Benefit
| Situation | Gift with Reservation? | Consequence |
|---|---|---|
| Transfer property, continue living there rent-free | Yes | Property stays in estate |
| Transfer property, pay full market rent | No | Gift takes effect |
| Transfer property, move out completely | No | Gift takes effect |
| Keep a room for occasional visits | Usually yes | Depends on frequency |
| Child charges below-market rent | Yes | Property stays in estate |
| Help with maintenance/bills | Possibly | Depends on extent |
How to Avoid Gift with Reservation
Option 1: Move out
- Fully vacate the property
- Don’t keep any possessions there
- Don’t treat it as your home
Option 2: Pay market rent
- Get independent valuation of rental value
- Pay full market rent monthly
- Child declares rental income and pays tax
- Keep records of all payments
Option 3: Share arrangement proportionally
- Gift part of property, keep part
- Pay rent only on the part you gifted
- Complex — needs professional advice
What If You’re Caught by GWROB?
If gift with reservation applies:
- Property included in your estate at death
- Full IHT payable on market value at death
- No 7-year rule benefit
- Could trigger double taxation in some cases
Capital Gains Tax on Gifted Property
When CGT Applies
| Property Type | CGT on Gift? |
|---|---|
| Your main home | No — Principal Private Residence Relief |
| Second home | Yes |
| Buy-to-let | Yes |
| Holiday home | Yes |
| Inherited property (not your main home) | Yes |
Calculating CGT on Gift
HMRC treats gifts as sales at market value.
Example: Second home gift
| Item | Amount |
|---|---|
| Current market value | £300,000 |
| Original purchase price | £150,000 |
| Improvements made | £20,000 |
| Gain | £130,000 |
| Annual exemption (2026/27) | £3,000 |
| Taxable gain | £127,000 |
| CGT at 18% (basic rate) | £22,860 |
| CGT at 24% (higher rate) | £30,480 |
CGT Rates on Property 2026/27
| Taxpayer Status | CGT Rate |
|---|---|
| Basic rate (within £50,270) | 18% |
| Higher/additional rate | 24% |
Timing the Gift
- CGT payable by 31 January following tax year of transfer
- Can spread gain using part-gift strategies
- Losses from other assets can offset gains
- Gift to spouse first (tax-free) then they gift to child
Stamp Duty on Gifted Properties
When SDLT Applies to Gifts
| Situation | SDLT Due? |
|---|---|
| Outright gift, no mortgage | No |
| Child takes on existing mortgage | Yes — based on mortgage amount |
| Gift in exchange for anything of value | Yes — based on value given |
| Transfer between spouses | No |
SDLT If Child Assumes Mortgage
If you gift a property with a £200,000 outstanding mortgage:
| SDLT Band | Rate | Tax |
|---|---|---|
| £0-£125,000 | 0% | £0 |
| £125,001-£200,000 | 2% | £1,500 |
| Total SDLT | £1,500 |
For second homes/investment properties, add 5% surcharge:
| SDLT Band (Additional Property) | Rate | Tax |
|---|---|---|
| £0-£125,000 | 5% | £6,250 |
| £125,001-£200,000 | 7% | £5,250 |
| Total SDLT | £11,500 |
Inheritance Tax on Property Gifts
Available Nil-Rate Bands
| Allowance | Amount | Who Can Use |
|---|---|---|
| Nil-rate band | £325,000 | Everyone |
| Residence nil-rate band | £175,000 | Main home passing to direct descendants |
| Transferred allowances | +£325,000 + £175,000 | If spouse died first |
| Maximum couple | £1,000,000 | Both use full allowances |
Residence Nil-Rate Band Rules
To get the extra £175,000:
- Property must have been your residence
- Must pass to direct descendants (children, grandchildren)
- Available even if downsized (with conditions)
- Tapers for estates over £2 million
Important: If you gift property during life, you lose the residence nil-rate band — it only applies on death.
Example: Property Gift and IHT
| Scenario | IHT Consequence |
|---|---|
| Gift £400,000 house, survive 7 years | No IHT |
| Gift £400,000 house, die 4 years later | £400,000 uses nil-rate band, £75,000 at 24% = £18,000 IHT |
| Gift £400,000 house, continue living there | Property in estate, potentially £30,000-£70,000 IHT depending on other assets |
| Keep house until death, leave to children | Use RNRB: £500,000 exempt, £0 IHT |
Legal Process for Transferring Property
What You Need
| Requirement | Details |
|---|---|
| Solicitor/conveyancer | Recommended for complex transfers |
| Land Registry form | TR1 (transfer of whole property) |
| ID verification | Standard identity checks |
| Proof of ownership | Title deeds or Land Registry documents |
| Market valuation | For tax purposes |
Costs of Transfer
| Item | Typical Cost |
|---|---|
| Solicitor fees | £500-£1,500 |
| Land Registry fee | £20-£125 |
| Valuation fee | £150-£400 |
| Bank transfer fees | £20-£50 |
| Total (excluding tax) | £700-£2,000 |
Timeline
- Agree terms — Ensure all parties understand implications (1 day)
- Get valuations — For CGT and IHT purposes (1-2 weeks)
- Instruct solicitor — Prepare transfer documents (1-2 weeks)
- Sign documents — TR1 and related paperwork (1 day)
- Submit to Land Registry — Update ownership (2-6 weeks)
- Complete — Total 4-10 weeks typically
Alternative Strategies
Keep Property Until Death
| Pros | Cons |
|---|---|
| Use residence nil-rate band | IHT if estate exceeds allowances |
| No CGT on death (base cost resets) | Property in probate |
| Children get property with market value base | May need to sell for care fees |
| Keep full control | No 7-year IHT planning |
Joint Ownership with Children
Types of joint ownership:
| Type | Meaning | On Death |
|---|---|---|
| Joint tenants | Equal shares, automatic transfer | Share passes to other owner(s) |
| Tenants in common | Defined shares, separate ownership | Share passes via will |
Joint tenancy:
- Your share automatically passes to child
- No probate needed for that share
- Capital gains calculated on your share only
Sell Property to Child at Market Value
| Aspect | Implication |
|---|---|
| CGT | Full liability if not main home |
| IHT | No IHT — not a gift |
| SDLT | Child pays full stamp duty |
| Mortgage | Child needs to qualify |
| Cash | You receive sale proceeds |
Use a Lifetime Mortgage/Equity Release
If you need income but want to reduce estate:
- Release equity, gift cash to children
- 7-year survival rule applies to cash gift
- You keep living in property
- Debt reduces estate value at death
Special Situations
Gifting Buy-to-Let Property
| Tax | Application |
|---|---|
| CGT | Payable on full gain at 18/24% |
| IHT | PET — 7-year rule |
| Income tax | Child declares future rental income |
| SDLT | If mortgage transferred, at higher additional property rates |
Strategy: Consider selling, paying CGT, and gifting cash instead — simpler and similar outcome.
Gifting to Children Under 18
- Cannot hold legal title to property
- Must use bare trust (child is beneficial owner)
- Adult trustee manages until child is 18
- Property transfers automatically at 18
Gifting Agricultural or Business Property
May qualify for relief:
- Agricultural Property Relief — up to 100% IHT exemption
- Business Property Relief — up to 100% IHT exemption
Professional advice essential for these.
Tax Comparison Summary
| Strategy | CGT | IHT | SDLT | Complexity |
|---|---|---|---|---|
| Gift now, move out | Possibly | PET (7-year rule) | Possibly | Medium |
| Gift now, pay rent | Possibly | PET effective | Possibly | High |
| Keep until death | None | Full estate | None | Low |
| Sell at market value | Yes | None | Yes | Medium |
| Joint ownership | On your share | On your share | Possibly | Medium |
| Trust arrangements | Varies | Varies | Varies | High |
Professional Advice Needed
Always get professional advice if:
- Property value significant (over £325,000)
- Multiple properties involved
- Want to continue living in property
- Any mortgage on property
- Blended family situations
- Non-UK residents involved
- Agricultural or business property
- Already made other large gifts
Expect to pay £500-£2,000 for comprehensive advice from a qualified solicitor and tax specialist.