What are the IHT and CGT implications of gifting a property?

Full answer

Giving away a property -- whether your main home, a buy-to-let, or a second property -- has significant dual tax consequences for the donor: Capital Gains Tax at the date of gift and Inheritance Tax implications on the donor's death. CAPITAL GAINS TAX: Gifting a property is a disposal for CGT purposes. Even if no money changes hands, HMRC treats the gift as a disposal at market value at the date of gift. The gain is market value at gift date minus original acquisition cost (plus allowable improvements and costs of acquisition and disposal). CGT is due in the tax year of disposal. Rates for 2026/27: 18% (basic rate) and 24% (higher rate/additional rate) for residential property. The Annual Exempt Amount is GBP 3,000. Private Residence Relief (PRR): if the property was your main residence for part or all of the period of ownership, PRR applies for the period it was your main home plus the final 9 months of ownership (in all cases). Full PRR means zero CGT. Partial PRR reduces the gain proportionately. Lettings relief: no longer available to most landlords (since April 2020) except where the landlord was in shared occupancy with the tenant. Valuation: you need a professional market valuation (RICS report) at the date of gift to establish the CGT disposal value. HMRC can challenge the valuation. Spouse/civil partner exemption: transfers of property between spouses and civil partners are exempt from CGT (the recipient takes the original base cost). This is a major planning point -- an asset can be transferred to a lower-rate spouse before an eventual sale to reduce the overall CGT bill. INHERITANCE TAX: A genuine outright gift of property (not to a spouse) is a Potentially Exempt Transfer (PET). If the donor survives 7 years from the date of the gift, the property falls entirely outside their estate -- no IHT. If the donor dies within 7 years, the gift is brought back into the estate and IHT may be payable: - Years 1-3 since gift: 40% IHT on value above NRB (GBP 325,000 + RNRB GBP 175,000 where applicable). - Years 3-4: 32% (taper relief reduces the tax -- not the value -- by 20%). - Years 4-5: 24%. - Years 5-6: 16%. - Years 6-7: 8%. - After 7 years: 0%. IMPORTANT: taper relief only reduces the IHT on the PET, not the amount of the estate value. It also only helps if the gift value exceeds the remaining NRB. Gift with Reservation of Benefit (GROB): if you continue to live in the property after gifting it rent-free, the property is treated as still in your estate for IHT. The 7-year clock does not start. To avoid this, you must either move out completely or pay full market rent (which turns the gift into a valid PET from that date). See the separate GROB entry. Always obtain legal advice, a professional valuation, and combined IHT and CGT advice before gifting property.

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