Property & Inheritance Tax Guide · 2026/27
Gifting Property to Children 2026/27: CGT, IHT & SDLT Explained
Giving a house or buy-to-let to your children feels like a simple, generous act -- but it can trigger an immediate capital gains tax bill, may not save any inheritance tax at all if you fall into the "gift with reservation of benefit" trap, and can even create an unexpected stamp duty charge if there is a mortgage involved. Here is exactly what happens, tax by tax.
Three Taxes to Consider
1. Capital Gains Tax (immediate)
Gifting is treated as a disposal at market value. If the property is not your main home, CGT is due on any gain within 60 days of the gift.
2. Inheritance Tax (7-year rule)
The gift only leaves your estate for IHT if you survive 7 years and do not continue to benefit from the property (gift with reservation of benefit).
3. Stamp Duty Land Tax (if mortgaged)
If your child takes on an outstanding mortgage as part of the gift, that debt counts as "consideration" and can trigger SDLT.
Worked Example: Gifting a Buy-to-Let
Margaret bought a buy-to-let flat in 2010 for £150,000. In 2026 she gifts it, mortgage-free, to her daughter when it is worth £280,000 -- a gain of £130,000. As a higher-rate taxpayer, after her £3,000 annual exemption, she pays 24% CGT on £127,000 = £30,480, due within 60 days of the gift.
Because Margaret does not live in the flat and never benefits from it again, if she survives seven years the £280,000 value falls outside her estate for IHT. If she dies within three years, the full value is added back to her estate at 40% IHT; between three and seven years, taper relief reduces the tax rate on a sliding scale.
Key Facts at a Glance (2026/27)
- CGT annual exemption
- £3,000
- Residential CGT rates
- 18% basic / 24% higher
- CGT reporting deadline
- 60 days from the gift
- IHT survival period
- 7 years (Potentially Exempt Transfer)
- IHT rate on death
- 40% (taper relief 3–7 years)
- Reservation of benefit risk
- Continuing to live there rent-free voids the 7-year rule
Frequently Asked Questions
Frequently Asked Questions
Do I pay capital gains tax if I gift a property to my child?
Yes, if the property is not your main home. Gifting a property is treated by HMRC exactly as if you sold it at its full market value on the date of the gift, even though no money changes hands. If the property has increased in value since you bought it, you may owe capital gains tax on that gain, using the normal residential CGT rates. Your main residence usually qualifies for Private Residence Relief, so gifting the home you actually live in is normally CGT-free -- but gifting a second home or buy-to-let is not.
How is the capital gains tax calculated on a gifted property?
The gain is the property's market value at the date of the gift, minus what you originally paid for it, minus certain allowable costs (buying and selling costs, and capital improvements). You then deduct your annual CGT exemption (£3,000 in 2026/27) and pay 18% (basic rate) or 24% (higher rate) on residential property gains, depending on your total income and gains for the year. You must report and pay CGT on UK residential property within 60 days of the gift.
Does gifting a property remove it from my estate for inheritance tax?
Only if you survive seven years from the date of the gift, and you do not continue to benefit from the property. This is the "7-year rule" -- a gift becomes a Potentially Exempt Transfer (PET), which falls outside your estate for IHT purposes if you live for seven full years after making it. If you die within seven years, the gift is brought back into your estate and IHT may be due, though taper relief can reduce the tax rate (not the value) on gifts made between three and seven years before death.
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What is gift with reservation of benefit, and why does it matter?
This is the single biggest trap in property gifting. If you give away your home (or another property) but continue to live in it, or otherwise continue to benefit from it, without paying a full market rent, HMRC treats it as a 'gift with reservation of benefit' (GROB). This means 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 -- the 7-year rule simply does not apply. Many parents who gift the family home but continue living there rent-free fall into this trap and get no IHT benefit at all.
Can I gift my home and still live in it without falling foul of GROB?
Yes, but only if you pay your child (or whoever you gifted it to) a full market rent for continuing to live there, and this rent is genuinely paid and could be treated as taxable income for them. This is sometimes called an "equity release scheme" style approach, but it is complex, the rent has income tax implications for the recipient, and it requires ongoing evidence of payment. Alternatively, some families use a formal "gift and lease-back" arrangement or seek advice on a "carve-out" arrangement, but all of these require specialist legal and tax advice to get right.
Is stamp duty land tax payable when gifting a property?
Usually not, if the property is given away with no money or other consideration changing hands and no outstanding mortgage. However, if there is a mortgage on the property and the child takes over responsibility for it (even without formally remortgaging), HMRC treats the assumed mortgage debt as 'consideration', and SDLT can become payable on the amount of debt taken on, if that amount is above the zero-rate SDLT threshold. This catches out many families who assume a straightforward gift has no SDLT at all.
Is it better to gift a property or leave it in my will?
It depends on your circumstances. Gifting during your lifetime starts the seven-year IHT clock running and can be effective if you can afford to give up the asset entirely and survive seven years. Leaving it in your will avoids CGT during your lifetime (assets held until death get an uplift to market value for CGT purposes, wiping out any gain built up before death), but the full property value remains in your estate for IHT. Many people combine strategies -- for example, using the Residence Nil Rate Band for a main home left via a will, while gifting a second property during their lifetime.
What if I gift only part of a property, or gift it into trust?
Gifting a share of a property (for example, adding a child as joint owner) still counts as a disposal of that share for CGT purposes, valued at market value. Gifting into a discretionary trust rather than directly to a child is treated as a Chargeable Lifetime Transfer rather than a Potentially Exempt Transfer, meaning an immediate 20% IHT charge can apply if the value exceeds your available nil rate band, plus periodic and exit charges on the trust going forward -- trusts add complexity and specialist advice is essential before using one.
Does my child have to pay tax on receiving the gifted property?
There is no gift tax or income tax on simply receiving a gifted property in the UK. However, once they own it, your child becomes liable for CGT on any future gain when they eventually sell it (calculated from the market value at the date of your gift, not what you originally paid), and if it is not their main residence, they may also face ongoing considerations like council tax, mortgage costs if applicable, and rental income tax if they let it out.
What paperwork do I need to gift a property properly?
You need a formal transfer of the property using a TR1 form (or equivalent), registered with the Land Registry, ideally supported by an independent RICS valuation to establish the market value for CGT purposes, and a solicitor to handle the legal transfer, especially if there is a mortgage involved. It is strongly advisable to also document the gift clearly (sometimes called a deed of gift) and, if continuing to live in the property, formal evidence of any market rent paid to avoid a gift with reservation of benefit challenge later.
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