Inheritance and family
Capital gains tax on gifting a property to your child
Giving a rental property to your child is treated as a sale at market value. CGT, the 60-day return, no hold-over relief, SDLT and inheritance tax, with an example.
If you give a buy-to-let to your child, HMRC treats it as a sale at market value, so you can owe capital gains tax at 18% or 24% on the gain, even though you receive no money. You report and pay within 60 days of completion. There is usually no hold-over relief for an ordinary let property, no SDLT on a pure gift, and a seven-year inheritance tax clock starts.
This article sets out how the three taxes work together, with a worked example.
Why a gift triggers capital gains tax
When you dispose of an asset other than by a bargain at arm's length, the tax rules substitute market value for whatever was paid (section 17 of the Taxation of Chargeable Gains Act 1992). A gift is the clearest example. Your child is also a connected person under section 286, so market value applies to them in any case. The same goes for your parents, brothers and sisters, and those relatives' spouses.
The gain is the market value on the day of the gift, less what you paid, buying costs and capital improvements. It is taxed at 18% within your unused basic rate band and 24% above it, after your £3,000 annual exempt amount for 2026/27.
No hold-over relief on let property
Gift hold-over relief defers the gain when you give away business assets. It covers assets used in a trade and shares in trading companies, but not residential property let as an investment. Furnished holiday lets were the exception until the regime was abolished in April 2025. Our page on passing property to your children explains the alternatives, including trusts, where a gain can sometimes be held over but inheritance tax charges may arise.
A worked example
This is an illustration, not a client example. A parent bought a rental house in 2012 for £180,000, with £4,000 of buying costs. It is worth £320,000 today and has a £100,000 mortgage. The parent is a higher-rate taxpayer and gives it to their adult daughter, who takes over the mortgage.
| £ | |
|---|---|
| Market value at the date of the gift | 320,000 |
| Less purchase price | (180,000) |
| Less buying costs | (4,000) |
| Gain | 136,000 |
| Less annual exempt amount | (3,000) |
| Taxable gain | 133,000 |
| CGT at 24% | 31,920 |
That bill is due within 60 days, and the parent has received no cash to pay it. The mortgage being taken over does not reduce the gain, because market value is used, not what the daughter pays.
SDLT. A gift with no payment is normally outside SDLT. But the £100,000 mortgage is treated as the price. On the standard rates that is nil, because the first £125,000 is taxed at 0%. If the daughter owns another residential property, the 5% higher rates surcharge applies and the SDLT is £5,000. Use our SDLT calculator for your own figures.
Inheritance tax. The gift is a potentially exempt transfer. If the parent survives seven years, no inheritance tax is due on it. The amount that counts is the value passed on, here about £220,000 after the mortgage. The £3,000 annual exemption can reduce it. On death within seven years, tax is charged only where total gifts exceed the £325,000 nil-rate band, with taper relief after three years. Our landlord inheritance tax calculator shows the effect.
The 60-day return
Because the gain produces tax, the parent must file a UK property return and pay within 60 days of completion of the gift. The figure is an estimate based on expected income for the year, and it is finalised on the Self Assessment return. If the gain is covered by the annual exempt amount, a loss or private residence relief, no return is needed. Late returns bring penalties and interest.
Keep the gift real
Two points often undo the plan:
- Keeping the rent. If you carry on taking rent from a property you have given away, it is a gift with reservation of benefit and stays in your estate. The rent should go to your child, who is taxed on it.
- Living in it. Staying in the property without paying a full market rent has the same result.
Your lender will also need to agree to a change of ownership, and your child's own tax position matters. A child who owns a home will pay the 5% surcharge on any mortgage they take over, and owning a let property costs a child first-time buyer relief on a later purchase.
Ways to soften the cost
- Choose properties with small gains. The tax now is low, and future growth moves out of your estate.
- Give a share each year. Each gift is a separate disposal, with its own annual exempt amount and basic rate band, and its own seven-year clock.
- Use losses and reliefs. Capital losses from other assets can reduce the gain, and private residence relief covers any period the property was your main home.
- Consider leaving it until death. Capital gains tax is wiped out on death, but inheritance tax applies to the full value.
- Consider a trust or a Family Investment Company. Each has its own tax cost, so compare them on your figures.
Our property CGT calculator works out the tax on a gift or sale.
What your child needs to know
Your child becomes the owner for every purpose. They are taxed on the rent from the date of the gift. If they have a mortgage, they face Section 24 on the interest like any individual landlord, with a basic rate credit rather than a deduction. See Section 24. They take the property at market value for their own capital gains tax, so a professional valuation on the date of the gift is worth having. It protects both of you if HMRC asks how the figure was reached.
Your child should keep the valuation, the transfer document and any mortgage paperwork. If they later sell, those papers set their base cost. If they later separate or divorce, an outright gift belongs to them and can be taken into account, so some families prefer a structure that keeps the asset separate.
Gifting a share instead of the whole property
You don't have to give the entire property. A gift of a half share is a disposal of that half at its market value, which is often a little less than half of the full value because a part-share is harder to sell. Each year you can give a further share, using a fresh annual exempt amount and basic rate band each time. The rent must follow the ownership. If you give your child half, they should receive half of the net rent. Record the split in a declaration of trust, and keep the lender informed.
Talk to us
Work out the gain, the SDLT and the inheritance tax position before anything is signed. Book a call and we will set out the options on a fixed fee agreed upfront.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
