How do I avoid capital gains tax on gifted property?

You can avoid capital gains tax on gifted property by: Selling the Property under asking price to someone you aren't connected to, however, this means you lose more than just the CGT. Live in the property for a period of time before you sell so that the property is your Principle Place of Residence (where you live). You'll still be liable for the partial time when the property wasn't your PPR so speak to a tax accountant to help calculate the CGT for you.

If I am gifted a house is it taxable?

There are 3 taxes that could be applicable when you are gifted a house: Inheritance Tax. If the original owner dies within 7 years of giving the property away, then the property is treated as a gift, and the 7-year rule applies. This tax is payable from the deceased's estate. Capital Gains Tax. If the property isn't your "Principle Place of Residence (PPR)" and you are gifting it to a connected Person, then capital gains tax is payable on the full market value. This tax is payable by the seller. Stamp Duty Land Tax. If the property is gifted under market value but needs some consideration, then the consideration could give rise to a Stamp Duty Land Tax Liability. This tax is payable by the new owner, not the person giving the gift.

Who is a Connected Person for CGT?

It states in the The Capital Gains Act 1992 S.286 (TCGA92/S286): A person is connected with an individual if that person is: the property owner's spouse or civil partner a relative of the property owner the spouse or civil partner of a relative of the property owner a relative of the property owner's spouse or civil partner the spouse or civil partner of a relative of the property owner's spouse or civil partner. Relative means a brother, sister, ancestor or lineal descendant (granddad and grandma, great grandad and great grandma). The term ‘relative’ does not cover all family relationships. In particular, it does not include nephews, nieces, uncles and aunts.

How do you calculate the market value for CGT purposes?

The market value of a property is based on the price 'which might reasonably be expected to fetch on a sale in the open market' and is based on the market value of the date of sale. For assets owned before April 1982, the date for the market value is the 31st March 1982. HMRC have the right to question your market value. Under such circumstances, you or they can complete a CG34 Post-Transaction Valuation Check. HMRC have specialist valuers to value land, and you’ll be able to discuss your valuations with the HMRC valuer.

Example of capital gains tax on gift of property to child

Mr and Mrs Smith want to gift their buy-to-let property to their child Roger. The property is worth £500,000 if they sold it on the open market; however, they are going to gift Roger £300,000, who'll pay for the £200,000 with a mortgage (undervalue mortgage). Mr and Mrs Smith are connected to Roger in the eyes of HMRC and have to use the market value of £500,000 for CGT purposes, not the £200,000 being paid. They declare the capital gains tax on their self-assessment tax form for the year.

We handle the full process when gifting property with our solicitors.

Our fees are fixed and competitive and we are able to guide you through every step of the way including getting your vesting order.

Find out how to gift your property

What is the Capital Gains Tax on Gifted Property?

Q: How can you gift a property?

Either sell and buy if there is a mortgage involved with the property. Gifted transfer. When there is a mortgage to redeem or there is money changing hands, then it needs to be handled as a sale and purchase because standard protocol is required for the mortgage lender. With a simple gifted transfer the process can complete in a matter of weeks - quicker if all parties send their ID and signed documents back as soon as possible.

by:

Andrew Boast

(Last Updated: 23/07/2024)

Created on:

05/03/2023

Read by:

17,654

6 min read

Capital gains tax on gifted property varies depending on the relationship between the owner of the property and the party/ies being gifted the property. HMRC will look to the relationship between the seller and the buyer to see how to treat the capital gains tax on gifts.

Where the transaction is transferring a property for under the market value, then the disposal needs to consider if any of the sellers are connected, defined below, to the buyer and if so, then the disposal value will be the full market value regardless of what money changed hands (if any).

A remortgage doesn't in itself give rise to a CGT liability, but if linked to a transfer of the beneficial interest, even if gifted, then it may do. Read more - Do you pay capital gains tax on remortgage?

How can you gift a property to your child?

The most common way to transfer property under market value is often called a Concessionary Purchase. Read more - Can I buy my parents' house under market value?

We specialise in gifting property to children and completing the transaction quickly. Call us for questions, or click the button below to get a Fixed Legal Fee Quote.

Get a Conveyancing Quote to Gift Property

Experienced in Gifting Property - Fixed Legal Fees – Fast Completions

We examine in more detail how parents are affected by capital gains tax on gifts of property to children and include how to calculate the CGT due, however if you are looking for what CGT is paid if you are married, then read this article - Capital Gains Tax on Property for Married Couples.

The good news is that there is no capital gains tax on your Principle Place of Residence (where you live); there is only CGT on second properties (such as a buy-to-let or a holiday home).

The rules around the gift of property to children are set out here - CG14530 - Consideration for disposal: market value rule. It states that:

Normally the consideration for the disposal of an asset is what the person who makes the disposal gets for it.

And the acquisition cost of the person who acquires the asset is the consideration which that person gave. But in certain circumstances the consideration which actually passes between the parties to the transaction is ignored.

Instead, the consideration is deemed to be equal to the market value at the date of disposal of the asset disposed of. The same figure is used as the acquisition cost of the person who acquires the asset.

Under TCGA92/S17 & TCGA92/S18 it goes on to state:

You use the market value of the asset instead of the actual consideration that passed between the parties where...the disposal and acquisition of the asset is between 'Connected Persons'. The law for this is set out here - Taxation of Chargeable Gains Act 1992 - Section 18 - Transactions between connected persons

Capital Gains Tax on Gifts

A connected person is defined under HMRC CG14580+ which states: A person is connected with an individual if that person is a relative of the individual. A relative is further defined: Relative means a brother, sister, ancestor or lineal descendant.

The term ‘relative’ does not cover all family relationships. In particular, it does not include nephews, nieces, uncles and aunts". As your children are lineal descendants, then if you gift your property to your children, then regardless of the actual consideration, the CGT paid by the parents is at market value.

Below is an example of a family tree, showing people who are connected to the owner for CGT purposes.

How do you calculate Capital Gains Tax on property?

	£
Proceeds from sale of property at Market Value	X
Less
Incidental costs of disposal eg. estate agent's fee, solicitor's fee	X
Equals net proceeds	X
Less
Original purchase price of property	X
Incidental costs of purchase eg. stamp duty, Land Registry cost, solicitor's fee	X
Gain (or loss)	X
Less capital gains tax allowance	X
Amount subject to Capital Gains Tax	X

You should speak to a tax advisor for capital gains tax advice.

What is the rate for capital gains tax on gifted property?

The Capital Gains Tax on residential sale profit is as follows:

Tax Band	Income Tax Band	Capital Gains Tax Rate (chargeable on profits)
Basic rate income tax payer	£0 to £50,270	18%
Higher rate income tax payer	Over £50,271	24% (post 6th March 2024 budget)

Non-UK Residents pay a flat rate of 28% for any gain. You have a tax-free allowance of £3,000 for 2023-24. Ensure that allowable expenses are deducted to reduce the gain.

Source: HMRC - Capital Gains Tax Rates

Need tax advice on your property transaction?

Get up-to-date property tax advice on SDLT, CGT, IHT, Personal versus partnership versus company structure.
Free 15-minute initial consultation with a qualified accountant from our panel of tax advisors.
Ask your tax questions and get guidance on what you can do next.
If there is some further accountancy work required, then you'll be quoted for this as a separate piece of work with no obligation to purchase.

Frequently Asked Questions

AVOID

TAXABLE

CONNECTED

MARKETVALUE

HOW

EXAMPLE

Written by: Andrew Boast

Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.

Reviewed by: Caragh Bailey

Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.

People also searched for