Transferring property to family members or loved ones as a gift may seem like a straightforward way to help them financially. However, when gifting property in the UK, it’s essential to consider Capital Gains Tax (CGT). In this guide, we’ll explain how CGT applies to gifted property, when tax is due, and how to manage property transfers efficiently.
What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax on the profit (or ‘gain’) you make when selling or disposing of an asset, including property. It’s not based on the full sale price, but the difference between what you originally paid and what you sell it for.
If you gift a property to someone other than your spouse, civil partner, or a charity, HMRC may treat this as if you’ve sold the property at market value, even though no money was exchanged. This means you could still face a CGT bill if the property has increased in value since you bought it. However, gifting property to your spouse or civil partner usually doesn’t trigger CGT, as transfers between them are tax-free.
Here's an overview of when CGT typically applies:
When CGT applies | When CGT doesn't apply |
|---|---|
You sell a property for more than you paid for it. | Transferring your main home, if you qualify for Private Residence Relief. |
You gift property to someone other than your spouse or civil partner. | Transferring property to a spouse or civil partner (unless separating or divorcing). |
You exchange property for something else. | Transferring property to charities or certain community sports clubs. |
You transfer ownership in a way that changes its value. |
Does Capital Gains Tax apply to gifts?
Yes, Capital Gains Tax (CGT) can apply when gifting property - even though no money changes hands. If the property has increased in value since you bought it, HMRC treats the gift as if you sold it at market value.
💡 Example: If you bought a property for £100,000 and later gift it when it’s worth £250,000, CGT is calculated on the £150,000 gain, not what you originally paid.
Who pays the CGT on gifted property?
If Capital Gains Tax applies to a gifted property, the person gifting the property - not the recipient - is responsible for paying the tax. This means that if the property has increased in value since it was originally purchased, the giver may face a tax bill, even though they are not receiving any money for the transfer.
👉 Want to know more? See our full guide on gifting property to someone.
What does a deed of gift do?
A deed of gift is a legal document that formalises the transfer of property ownership without any payment or financial exchange. It acts as proof that the giver (also called the donor) has voluntarily transferred the property as a gift and that the recipient now legally owns it. A deed of gift is often used in situations where property is being transferred between:
Family members – such as children, parents, siblings, or grandchildren.
Friends – to gift a property to a close acquaintance.
Charities – to donate property to a registered charity.
However, a deed of gift does not exempt the giver from CGT, unless the recipient is a spouse or civil partner.
Can you transfer property and avoid CGT?
There are a few ways to reduce or avoid CGT when transferring property:
Gift property to a spouse or civil partner: No CGT is due on transfers between married couples or civil partners (as long as they live together).
Use Private Residence Relief: If the property has been your main home for the entire ownership period, you may qualify for CGT relief.
Transfer gradually: Gifting the property in stages over several tax years may help stay within the CGT allowance (£6,000 for 2024-25 tax year).
Gift to charity: No CGT is due when donating property to a registered charity.
Are children liable for Capital Gains Tax?
If a property is gifted to a child (or anyone other than a spouse or charity), CGT applies to the person gifting the property. However, if the child later sells the property, they may have to pay CGT on any further increase in value.
For example:
A property is gifted at £200,000.
The child sells it years later for £300,000.
The £100,000 gain may be subject to CGT, depending on their tax situation.
If a child inherits property instead of receiving it as a gift, CGT does not apply. Instead, Inheritance Tax (IHT) may be due, depending on the estate’s total value.
When do you pay Inheritance Tax?
Inheritance Tax (IHT) applies when an estate (including property, savings, and assets) exceeds £325,000 at the time of death. The standard IHT rate is 40% on amounts above this threshold.
The seven-year rule for IHT
If the giver lives seven years after gifting the property, it is exempt from IHT.
If they pass away within seven years, the gift is subject to IHT based on a sliding scale (known as taper relief).
Years between gift and death | IHT payable |
|---|---|
Less than 3 years | 40% |
3 - 4 years | 32% |
4 - 5 years | 24% |
5 - 6 years | 16% |
6 - 7 years | 8% |
More than 7 years | 0% |
Do you pay CGT and Inheritance Tax together?
In most cases, CGT and IHT do not apply at the same time.
If a property is gifted while the giver is alive, CGT may apply immediately, and IHT could apply if the giver dies within seven years.
If property is inherited upon death, IHT applies, but CGT is not due unless the recipient later sells the property for a profit.
FAQs
Can I avoid CGT by gifting my home?
No, unless you qualify for Private Residence Relief (if it’s your main home) or gift it to your spouse or civil partner. Otherwise, CGT is based on the property’s market value at the time of transfer.
Does CGT apply if I give my property to my child?
Yes, gifting property to a child is treated like a sale for CGT purposes, based on its current market value. The person gifting the property is responsible for any CGT due.
How do I calculate CGT on a gifted property?
Subtract the original purchase price from the current market value at the time of gifting. Deduct any allowable expenses (e.g. legal fees, home improvements), then apply the CGT tax rate based on your income.
Can I gift property to my children tax-free?
Gifting property to children may still incur CGT at the time of transfer. If the giver survives seven years, the gift becomes exempt from Inheritance Tax.
Can I transfer my house to my child and still live in it?
Yes, but if you continue living in the home without paying market rent, it may still count as part of your estate for Inheritance Tax purposes.
Final thoughts
Gifting property can be a great way to support loved ones. When deciding whether to proceed it’s crucial to understand the Capital Gains Tax (CGT) and Inheritance Tax (IHT) implications. Without careful planning, the person gifting the property may face unexpected tax bills.
If you're considering gifting property, consult a tax advisor or property solicitor to explore the best way to minimise tax liability and protect your assets.
References
Capital Gains Tax: what you pay it on, rates and allowances from Gov.UK
Tax when you sell your home from Gov.UK
How Inheritance Tax works: thresholds, rules and allowances from Gov.UK
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant or business advisor. Bear in mind that tax rules can change and will differ based on your circumstances.
