Gifting property to your children or other family members can be a generous and efficient way to reduce potential inheritance tax (IHT) liabilities. However, it’s important to understand the tax rules that might apply, as the gifting process is not always straightforward.

For many people, property is their largest asset, whether that’s the main family residence, a holiday property or a rental portfolio. We take a look at how gifting property works, the tax implications involved, and how to avoid the most common pitfalls that people make.

Inheritance tax is typically charged at a rate of up to 40% on estates, but gifts can help reduce the taxable portion

Can I gift property to my children or another family member?

Yes, you can gift property to a family member, whether it’s your primary residence or second property. However, the tax treatment of this gift can vary significantly depending on who you are gifting it to and whether the property is your primary residence.

The three main taxes to consider when gifting property are Inheritance Tax (IHT), Capital Gains Tax (CGT) and Stamp Duty.

Whether these taxes apply to you depends on:

  • Who the recipient is (for example, whether they are a spouse, child, or another family member)
  • Whether the property is your primary residence
  • Whether there’s a mortgage on the property

Will my children be liable for inheritance tax on a gifted property?

Though gifting a property to your children can be a good way to reduce the inheritance tax (IHT) liability on your estate, there are rules.

Inheritance tax is typically charged at a rate of up to 40% on estates that exceed a certain value, but gifts can help reduce the portion of your estate that might be taxed.

The IHT-free threshold is currently:

  • £325,000 per individual, until 2028.
  • An additional £175,000 if the property is passed to children or grandchildren, raising the threshold to £500,000.
  • If you’re married, or in a civil partnership, you can combine your allowances to achieve a joint IHT allowance of £1 million.

Your children won’t pay any IHT on the gifted property if your entire estate falls below these allowances, or you live for seven years after the gift is made.

If your estate exceeds these allowances, or you die within seven years of making the gift, your children will be liable for IHT. The amount they’ll need to pay is calculated on a sliding scale, dependant on the time elapsed between the receipt of the gift and your death.

For more: How much money can I leave without an Inheritance Tax bill?

Can I transfer ownership of the family home to my children to avoid paying tax?

You can gift or transfer ownership of your main home to your children while you’re still alive. However, bear in mind that if you continue to live in the property and want it to sit outside of your estate for inheritance tax purposes, you’ll need to pay rent at market rate to your child.

If you pay a small amount of rent, or none at all, the house will still be considered part of your estate. This means your children could be hit with a hefty IHT bill when you die.

Another important factor to bear in mind is that gifting the family home to your children while you’re still alive means you are no longer the homeowner and have no rights to the property. They could potentially sell the property and evict you, so it’s not a decision you should take lightly.

Do I need to pay Capital Gains Tax on gifted property?

If the property being gifted is your primary residence, or it’s transferred to a spouse or civil partner, you don’t need to worry. There is no Capital Gains Tax (CGT) to pay.

However, if you’re transferring or gifting a buy-to-let property or second home to someone other than a spouse or civil partner, you will incur capital gains tax on the profit, just as if you had sold it.

When it comes to CGT, the responsibility usually falls on the person who made the gift rather than the person receiving it.

The first £3,000 is tax-free (based on tax year 2024/25). Profits higher than that are taxed at different rates depending on your income tax bracket:

  • Basic-rate taxpayers: pay CGT at a rate of 18% for gains on rental property
  • Higher-rate taxpayers: pay 28%

Can I avoid paying Capital Gains Tax on property gifts?

There are a few ways of reducing your exposure to CGT, but it’s always advisable to seek advice to ensure that what you are doing is within the rules – and won’t result in an unexpected tax bill.

  • Transferring to a spouse or civil partner: You can transfer a property to your spouse or civil partner without triggering CGT, although when your partner sells, CGT will be due at that point. This is worth considering, especially if they’re on a lower tax bracket than you because they’ll pay less tax on the profit.

  • Place the property in both your names: Placing the property in your name and that of your spouse/partner means you’ll be able to use both of your CGT tax-free allowances when it comes to selling it.

For more: What is Capital Gains Tax and how to reduce it?

You will incur capital gains tax on the profit of a gifted second property, just as if you had sold it

Does Stamp Duty apply on a gifted property?

If there is an outstanding mortgage on the property, stamp duty will probably be due. But, if there’s no mortgage, there is no chargeable consideration to take into account, so typically there won’t be any stamp duty to pay.

If your child takes over the mortgage, they’ll be responsible for paying stamp duty on the value of the outstanding loan.

Before you gift a property with a mortgage, you’ll need to check that the bank or building society will agree to the transfer of equity. This will depend on whether your child can afford the mortgage repayments. If their salary or credit rating is too low, you may be able to act as guarantor on the mortgage.

Common questions

Here are some examples of the types of question our advisers are often asked, when it comes to property gifting and tax implications:

– Can I gift our family home to our daughter and downsize to our second home?

You can reduce your estate’s IHT liability when you gift your primary residence and move out to a second property that then becomes your main residence.

However, you must survive for seven years for the gift to be fully exempt from IHT. Otherwise, the full 40% inheritance tax rate will apply if you die within the first three years after the transfer.

Because it’s your main residence, there’s no Capital Gains Tax to pay at the point of transfer. And if the home then becomes your daughter’s family home, and she lives there for a minimum of two years before she sells, she won’t be required to pay any CGT either.

However, if she decides to rent the property or use it as a second home, CGT will be due on any increase in value since the gift was made (when she comes to sell).

– Can I transfer a buy-to-let property to my child?

If you gift a rental property, you may be liable for CGT on any profit made from the property’s appreciation. However, you may calculate that this is still cheaper than the potential inheritance tax bill that would be due on your estate if you kept it.

And while your son or daughter won’t have to pay CGT, they may need to consider future rental income and whether it falls within their personal tax allowances.

– Can I gift the monthly rent from a buy-to-let I own, directly to my child who’s at university?

You can give your child the rental from a buy-to-let, but you’ll still have to pay income tax on the amount as if you’d earned it.

However, you could transfer an interest in the property to your child (for instance, 10%). Although CGT would be due on that amount, your child would then be entitled to a share of the rental income, which, as a lower or no-rate taxpayer, would incur less tax.

This can be a useful way to reduce both inheritance and future capital gains tax liabilities, though careful planning is essential to avoid complications.

Gifting property can be a good way of reducing inheritance tax and helping your loved ones financially. However, the rules relating to tax are complex, subject to individual circumstances and can change at any time. Their implications are complex, too, and it’s easy to fall foul of the rules and end up with an unwelcome bill.

To fully understand how inheritance tax, capital gains tax, and stamp duty might affect your decision, it’s important to seek professional advice first.

Amber River Financial Planning

At Amber River, we’re here to help you make informed financial decisions for the future. Speak to one of our advisers today to learn more about gifting property and how it fits into your wider financial plan.

Get in touch

Amber River has a network of Chartered financial planners right across the UK, ready to offer truly independent advice. If you want to set up an initial appointment, call 0800 915 0000, or alternatively use our contact form here.

Capital Gains Tax CGT Children Estate planning Gifting IHT Inheritance Tax Planning Intergenerational planning Second home Stamp duty