Gifting Property to Your Children: The CGT and IHT Rules in 2026/27
Gifting property to children in 2026/27 can trigger Capital Gains Tax immediately and still leave the value in your estate for up to 7 years under Inheritance Tax rules. Worked example included.
Two separate taxes, two separate clocks
Gifting property to your children touches two different taxes that work in completely different ways: Capital Gains Tax, which can apply immediately on the gift itself, and Inheritance Tax, which depends on how long you go on to live afterwards. Understanding both — and how they interact — matters before any gift is made, not after.
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Open Capital Gains Tax calculatorCapital Gains Tax: the immediate hit
If you gift a property you own that is not your only or main home (for example a buy-to-let, a second home, or a share of an inherited property), HMRC treats the gift as a disposal at market value, even though your child pays you nothing. Any gain since you originally bought it — or since you started letting it, if it was once your home — can be chargeable to Capital Gains Tax in the tax year of the gift.
Worked example: you bought a buy-to-let for £180,000 several years ago; it is now worth £340,000. You gift it to your daughter.
- Deemed disposal proceeds: £340,000 (market value)
- Gain: £340,000 − £180,000 = £160,000
- Annual exempt amount (2026/27): £3,000
- Taxable gain: £160,000 − £3,000 = £157,000
- Tax at 24% (higher-rate taxpayer, residential property): £157,000 × 24% = £37,680
The Capital Gains Tax bill is due even though you received no cash from the gift — a common trap for families gifting an investment property rather than cash.
Inheritance Tax: the 7-year clock
Once the Capital Gains Tax position is settled, the gift also starts a separate 7-year clock for Inheritance Tax. A gift to your children is a Potentially Exempt Transfer (PET): it falls completely outside your estate for Inheritance Tax purposes only if you survive at least 7 years from the date of the gift.
If you die within 7 years, the value of the gift is added back into your estate for Inheritance Tax purposes, and taper relief applies to the tax charged (not the value counted) if you survive at least 3 years:
| Years survived after gift | Taper relief | Effective IHT rate on the gift |
|---|---|---|
| Less than 3 years | 0% | 40% |
| 3–4 years | 20% | 32% |
| 4–5 years | 40% | 24% |
| 5–6 years | 60% | 16% |
| 6–7 years | 80% | 8% |
| 7+ years | 100% (exempt) | 0% |
The "reservation of benefit" trap
A very common mistake is gifting the family home to children while continuing to live in it rent-free. HMRC treats this as a gift with reservation of benefit: because you still get the use of the asset, it remains part of your estate for Inheritance Tax when you die — no matter how many years have passed since the "gift". To avoid this, you would need to pay a full market rent to your children for continuing to live there, which most families find impractical, or genuinely move out.
Watch the Residence Nil-Rate Band
The Residence Nil-Rate Band — up to £175,000 on top of the standard £325,000 nil-rate band — only applies when a qualifying residence passes to direct descendants on death. If you gift the family home away during your lifetime instead of leaving it in your will, it is no longer part of your estate to benefit from the Residence Nil-Rate Band at all, which can mean losing up to £175,000 of extra tax-free allowance depending on your wider estate.
inheritance-tax-ukBottom line
Gifting property to your children is rarely as simple as "get it out of my estate" — it can trigger an immediate Capital Gains Tax bill, starts a 7-year Inheritance Tax clock with only partial protection via taper relief after 3 years, risks the reservation-of-benefit trap if you keep living there, and can forfeit the Residence Nil-Rate Band on the family home. Professional advice before gifting, rather than after, is strongly worthwhile given how much tax can be at stake.
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Frequently asked questions
Do I pay Capital Gains Tax when I gift a property to my child?
Yes, in most cases. Gifting a property you own (other than your only or main home, which usually has Private Residence Relief) is treated as a disposal at market value for Capital Gains Tax purposes, even though no money changes hands, so a gain since you bought it can still be taxable.
Does gifting property remove it from my estate for Inheritance Tax immediately?
No. A gift of property to your children is a Potentially Exempt Transfer, which only becomes fully exempt from Inheritance Tax if you survive at least 7 years after making the gift. If you die within 7 years, some or all of the value can be brought back into your estate.
What is taper relief on gifts?
Taper relief reduces the Inheritance Tax charged on a gift if you survive between 3 and 7 years after making it, on a sliding scale: 20% relief in year 3-4, 40% in year 4-5, 60% in year 5-6 and 80% in year 6-7. It only reduces the tax rate applied, not the value of the gift counted against your nil-rate band.
Can I still live in a property I have gifted to my children?
Only if you pay a full market rent, or the gift qualifies for a specific exemption. Otherwise HMRC treats it as a 'gift with reservation of benefit', meaning the property is still counted as part of your estate for Inheritance Tax when you die, regardless of how many years have passed since the gift.
Does gifting the family home affect the Residence Nil-Rate Band?
It can reduce it. The Residence Nil-Rate Band of up to £175,000 only applies when a qualifying home passes to direct descendants on death — if you have already gifted the home away during your lifetime, it is no longer in your estate to benefit from the Residence Nil-Rate Band at all.
What is a better alternative to an outright gift for some families?
Depending on circumstances, some families use a trust, a deed of gift with a retained interest paying market rent, or simply keep the property until death so it can use the Residence Nil-Rate Band — the right approach depends heavily on individual circumstances and usually benefits from professional advice.
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Related reading
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