Deed of Gift for Property -- IHT and CGT Implications 2026

Gifting property is one of the most common strategies families consider when trying to reduce their inheritance tax exposure. The logic seems simple -- give away an asset before you die, and it will not be in your estate when HMRC assesses IHT. But the reality is considerably more nuanced. A gift of property triggers capital gains tax at the point of transfer, starts a seven-year IHT countdown, and can be rendered completely ineffective from a tax perspective if you continue to benefit from the property after giving it away. This guide explains every significant implication of gifting property in 2026, from the legal mechanics of a deed of gift to the interaction with the nil-rate band.

What Is a Deed of Gift for Property?

A deed of gift is a formal legal document by which one person (the donor) transfers ownership of property to another person (the donee) without receiving any payment in return. For property in England and Wales, a deed of gift must be in writing, signed by the donor, witnessed by an independent person, and registered at HM Land Registry to transfer legal title.

The deed records the transfer of both the legal title and the beneficial interest in the property. In some cases, only the beneficial interest is transferred while the legal title remains with the donor -- for example, where a property is held on trust. HMRC looks through the legal form to the substance of the arrangement: if you have genuinely given away the beneficial interest, that is what matters for tax purposes.

IHT Consequences -- The Seven-Year Clock

For IHT purposes, a gift of property to an individual (rather than to a trust) is treated as a potentially exempt transfer (PET). A PET is not immediately chargeable to IHT. Instead, it becomes fully exempt if the donor survives for seven years after making the gift. If the donor dies within seven years, the gift is brought back into the estate and assessed for IHT.

The standard IHT nil-rate band is GBP 325,000 in 2026/27, with an additional residence nil-rate band of GBP 175,000 available where a qualifying residential property passes to direct descendants. Gifts made in the seven years before death are added back to the estate and chargeable against the nil-rate band before the estate assets themselves.

This means a large gift of property made within seven years of death can use up the nil-rate band, leaving other estate assets fully exposed to the 40% IHT rate.

Taper relief reduces the IHT charge on gifts if the donor survives between three and seven years:

• 3 to 4 years before death: 20% reduction in the IHT charge
• 4 to 5 years: 40% reduction
• 5 to 6 years: 60% reduction
• 6 to 7 years: 80% reduction

Taper relief does not reduce the value of the gift -- it reduces the rate of tax applied to it. And it only applies where the gift exceeds the available nil-rate band, so for modest gifts within the NRB, taper relief is irrelevant.

CGT on Gifted Property -- Disposal at Market Value

The CGT treatment of a gift is the aspect most commonly overlooked by people contemplating property transfers. HMRC does not treat a gift as an arms-length transaction -- it applies the market value rule under section 17 of the Taxation of Chargeable Gains Act 1992. This means the donor is treated as having disposed of the property for its current market value, regardless of the fact that nothing was received.

If you purchased a buy-to-let flat in 2005 for GBP 120,000 and it is now worth GBP 320,000, gifting it to your child is treated for CGT purposes as a sale at GBP 320,000. The taxable gain is GBP 200,000 (subject to any available reliefs or deductions for capital improvements).

The annual CGT exempt amount in 2026/27 is GBP 3,000. After applying the AEA, the net gain of GBP 197,000 would be taxed at 18% if the donor is a basic rate taxpayer (GBP 35,460) or 24% if a higher rate taxpayer (GBP 47,280). These are significant sums that need to be factored into any gifting decision.

The donee acquires the property at its market value at the date of the gift. This becomes their cost base for any future CGT calculation when they sell.

Principal Private Residence Relief

If the property being gifted is the donor's main home and has been throughout their period of ownership, principal private residence (PPR) relief may eliminate the CGT charge entirely. PPR exempts gains attributable to periods of main residence, plus the final nine months of ownership in any case.

If the donor has always lived in the property as their only home, a full PPR exemption typically applies and there is no CGT on the gift. However, if the property is a second home, a holiday let, or a buy-to-let that the donor never occupied, PPR relief is not available and CGT is charged in full.

Even where partial PPR relief applies -- for example where the donor lived in the property for some years and then let it -- the exemption will reduce but not eliminate the gain.

Gift to Spouse -- No CGT, No IHT

Transfers between spouses and civil partners are treated entirely differently. Under TCGA 1992 section 58, a gift between spouses is treated as made at no gain no loss -- meaning no CGT arises. The recipient spouse takes on the donor's original acquisition cost and date, so any future sale by the recipient will calculate the gain from the original purchase price.

For IHT, transfers between UK-domiciled spouses are fully exempt under the spouse exemption, regardless of value. There is no seven-year clock, no PET, and no chargeable transfer. This makes interspousal transfers a valuable planning tool -- for example, where one spouse is a basic rate taxpayer and the other has already used their CGT allowance.

Gift to Children vs Into Trust

Gifting property outright to an adult child is a PET with no immediate IHT charge. Gifting property into a discretionary trust, by contrast, is a chargeable lifetime transfer (CLT). A CLT is immediately chargeable to IHT at 20% to the extent it exceeds the available nil-rate band, with further anniversary and exit charges applying during the trust's life.

This distinction is critical when considering the vehicle for a gift. If you want your children to own the property absolutely, a direct gift (PET) is almost always preferable from an IHT perspective. If you want to retain flexibility over who benefits -- for example because you are uncertain which children should ultimately receive the property -- a trust may be more appropriate, but at a higher upfront IHT cost.

Bare trusts (where the beneficiary is absolutely entitled) are generally treated as gifts to the beneficiary and taxed as PETs, not CLTs.

Gift with Reservation of Benefit -- The GROB Trap

The single most common mistake in property gifting is what HMRC calls a gift with reservation of benefit (GROB). The relevant legislation is in section 102 of the Finance Act 1986.

If you give away your home to your children but continue to live in it without paying a full market rent, the gift is treated for IHT purposes as if it were never made. The property remains in your estate at its value at the date of death.

The same principle applies to any property where the donor continues to benefit from the asset -- for example, using it as a holiday home, deriving income from it while the recipient owns it, or making significant decisions about its use.

To avoid GROB status, the donor must genuinely give up all benefit. If you give your home to your children, you must either move out entirely or pay a full market rent to them. Paying market rent is taxable income in the hands of the children and creates its own complications.

An alternative structure sometimes considered is the home loan scheme or debt scheme, but HMRC has challenged many such arrangements under the pre-owned assets tax (POAT) rules, which impose an annual income tax charge where GROB is avoided through a scheme but the donor continues to enjoy the asset.

Annual Exemptions and Small Gifts

Every individual has an annual IHT exemption of GBP 3,000 per tax year, which can be used against any gifts. If the exemption was not used in the previous tax year, it can be carried forward one year, giving a maximum of GBP 6,000 in a single year.

The small gifts exemption allows unlimited gifts of up to GBP 250 per person per year to any number of individuals -- but it cannot be combined with the annual exemption for the same recipient.

For property of any material value, these exemptions are negligible. A house worth GBP 400,000 cannot meaningfully be sheltered by a GBP 3,000 annual exemption.

SDLT on Gifted Property

Stamp Duty Land Tax is a transaction tax on the chargeable consideration given for a property. A gift made entirely free of mortgage attracts no SDLT because there is no consideration.

However, where the property is subject to a mortgage and the recipient takes over the mortgage debt, HMRC treats the outstanding mortgage balance as chargeable consideration. SDLT is then calculated on that amount at the applicable rates, including the additional 3% surcharge if the recipient already owns another property.

This is an important practical point for anyone contemplating gifting a mortgaged property. Lenders may also need to consent to a transfer of title, and the existing mortgage terms may not permit a transfer to a family member without refinancing.

Practical Costs and Legal Process

A deed of gift for property requires a solicitor to prepare the transfer deed (TR1 form for registered land), handle Land Registry registration, and carry out any required identity and anti-money-laundering checks. Legal fees typically range from GBP 500 to GBP 1,500 for a straightforward gift, depending on the complexity of the transaction and whether there are any mortgage or trust complications.

You should obtain a professional valuation of the property at the date of the gift. This is essential for the CGT calculation and for any IHT return that may need to be completed if the donor dies within seven years.

Using the Nil-Rate Band in Planning

Where a donor expects to survive seven years and the gifted property falls outside the IHT nil-rate band, the seven-year clock is the most important planning tool. Making gifts early -- while the donor is in good health and has a reasonable life expectancy -- maximises the chance of the PET becoming fully exempt.

Where the donor is older or in poor health, gifting large assets may trigger CGT without achieving the IHT saving if the donor dies within seven years. In those circumstances, holding the asset until death may be preferable, as the recipient would acquire it at the probate value with CGT wiped out (the base cost uplift on death). This is sometimes called the CGT rebasing benefit of holding assets until death.

A worked example brings this to life. Suppose a parent gifts a buy-to-let worth GBP 400,000 to their child. The original cost was GBP 150,000. The gain of GBP 250,000 minus AEA of GBP 3,000 = GBP 247,000 taxable gain. At 24%, CGT of GBP 59,280 is due in the year of the gift. If the parent dies two years later, the GBP 400,000 gift is still in the estate (PET failed). The IHT nil-rate bands (GBP 325,000 NRB + GBP 175,000 RNRB if applicable) may shelter the gift entirely -- but the CGT cost of GBP 59,280 was paid for nothing from an IHT perspective.

Had the parent held the property until death, the child would inherit it at the GBP 400,000 probate value with no CGT owed by the parent. The CGT base cost uplift on death means the child could then sell immediately with no CGT liability. IHT would depend on the overall estate value and available exemptions.

Gifting property is a powerful planning tool when used at the right time and structured correctly, but the combination of CGT on disposal, the seven-year IHT rule, the GROB trap, and potential SDLT means that professional advice is essential before any transfer is made.