Gifting Property to Children UK (2026): CGT, IHT, GROB & Legal Steps
Updated 13 May 2026 · 9 min read · England & Wales
Gifting property to your children is one of the most common estate planning strategies people consider — and one of the most frequently misunderstood. Simply putting a house in your children’s name while you continue living there does nothing for inheritance tax. HMRC has specific anti-avoidance rules that make these arrangements backfire. Here is what you need to know before making any transfer.
The gift with reservation of benefit (GROB) trap
The most important rule in property gifting is s102 Finance Act 1986: if you give away an asset but continue to benefit from it, HMRC treats the asset as still part of your estate for inheritance tax. The gift is simply ignored.
The classic example: a parent transfers their home to their children but continues to live there without paying market rent. The transfer is real — the children are the legal owners — but for IHT, HMRC acts as if the transfer never happened. The home stays in the parent’s estate and will be taxed at 40% above the nil rate band on death.
To escape the GROB rules, the donor must either:
- Move out of the property permanently — no continued occupation at all
- Pay a full commercial market rent to the children who now own the property
Paying below-market rent — even a nominal amount — does not satisfy the requirement. Full commercial rent means what an unconnected third party would pay for the same property.
Capital gains tax on gifting property
A gift of property is treated as a disposal at market value for CGT purposes (TCGA 1992, s17). Whether CGT arises depends on the type of property:
| Property type | CGT on gift? | Rate (2026/27) |
|---|---|---|
| Main home (PPR) | No — main residence relief applies | Exempt |
| Investment/buy-to-let property | Yes — gain taxed at market value | 18% (basic) / 24% (higher) |
| Second home / holiday let | Yes — no PPR relief for non-main residence | 18% (basic) / 24% (higher) |
If you bought a buy-to-let for £150,000 and it is now worth £400,000, the gift triggers a CGT charge on the £250,000 gain (less your £3,000 annual exemption). At 24%, that is approximately £59,280 in CGT — payable within 60 days of the transfer, regardless of whether any cash changed hands.
Gift relief (hold-over relief, s165 TCGA 1992) is available between connected parties for business assets and gifts into trust, but not for outright gifts of residential property. You cannot defer the CGT on a straight gift of a buy-to-let to your children.
Inheritance tax: the 7-year rule
If you successfully avoid the GROB trap (by moving out or paying market rent), the gift becomes a potentially exempt transfer (PET). PETs are only fully outside the estate if you survive 7 years from the date of the gift. If you die within 7 years:
| Years survived after gift | IHT taper reduction | Effective IHT rate |
|---|---|---|
| 0–3 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% | 0% |
Stamp duty land tax
A pure gift (no consideration, no mortgage taken over) does not attract SDLT. However, if the property is transferred subject to a mortgage, SDLT is charged on the amount of the mortgage debt assumed — calculated as though the mortgage balance is the purchase price. The 3% SDLT surcharge may also apply if the property is not the recipient’s only home.
Care home fee deliberate deprivation
Even if a gift is genuine and avoids GROB and IHT, local authorities conducting means tests for residential care fees can look back at asset transfers made to deliberately avoid care costs. If the local authority decides the gift was a “deliberate deprivation” of assets, they can treat the gifted asset as still belonging to the person for care fee purposes — regardless of how long ago it was transferred. There is no fixed time limit.
Better alternatives for most families
For many families, gifting the property outright creates more problems than it solves. Consider:
- Life interest trust in a will: no immediate CGT or SDLT; survivor keeps occupation; passes to children on second death
- Nil rate band discretionary trust: uses the first spouse’s NRB on death without triggering an immediate CGT event
- Downsizing: sell, buy something smaller, gift the cash proceeds as PETs
- Equity release: raise tax-free cash from the home; gift it; the home stays in the estate
Frequently asked questions
Can I give my house to my children to avoid inheritance tax?
Yes, but it is far more complicated than it sounds, and the main strategy people try — giving away the house while continuing to live in it — does not work for IHT. Under s102 Finance Act 1986 (gift with reservation of benefit, or GROB), if you give your home to your children but continue to live there rent-free, HMRC ignores the gift entirely: the property stays in your estate as if you still owned it. To remove the house from your estate you must either (a) move out permanently, or (b) pay your children a full commercial rent. Simply transferring the title without changing your occupation has no IHT benefit.
Do I pay capital gains tax when I give my home to my children?
It depends on whether the property is your main home. Your principal private residence (PPR) — the home you actually live in — is exempt from CGT under the main residence relief (TCGA 1992, s222). Gifting your main home to your children does not trigger CGT. However, gifting an investment property, a second home, or a buy-to-let will trigger a CGT disposal at market value at the time of the gift. Gains above the annual exemption (£3,000 in 2026/27) are taxed at 18% (basic rate) or 24% (higher rate) for residential property. If the property has a large gain, the CGT bill may outweigh any IHT saving.
What is the gift with reservation of benefit (GROB) rule?
A gift with reservation of benefit (GROB) arises where you give away an asset but continue to benefit from it. Under s102 Finance Act 1986, HMRC treats the gifted asset as still part of your estate for IHT — the gift is ignored. The classic GROB: a parent transfers their home to their children but continues to live there without paying market rent. The home remains in the parent's estate for IHT even after the transfer. To avoid GROB on a gifted home, the donor must either vacate permanently or pay a full commercial rent to the donee children. Paying below-market rent — even a token — still triggers GROB.
If I give my home to my children and pay them rent, does it leave my estate?
Yes — paying a full commercial rent avoids the GROB rules. The home is a genuine gift and falls outside your estate after the 7-year PET period. However, there are consequences: (1) the rent your children receive is income on which they pay income tax; (2) if you later need to move into care, the local authority will investigate whether the gift was a deliberate deprivation of assets (a deliberate transfer to avoid care fees); (3) your children own the home — they could be forced to sell by creditors, divorce proceedings, or disputes. These practical risks often make gifting the home less attractive than alternatives like a life interest trust.
What are the stamp duty land tax (SDLT) implications of gifting property?
A pure gift (no mortgage, no consideration) does not attract SDLT. However, if the recipient takes over a mortgage on the property, SDLT is charged on the mortgage debt assumed — calculated as if it were a purchase price. If the property is transferred subject to a mortgage of £300,000, the recipient pays SDLT on £300,000. Where the property is an investment property or a second home for the recipient, the 3% SDLT surcharge may also apply. Check with a solicitor before any transfer.
Are there alternatives to gifting property outright to children?
Yes — and for many families they are preferable. (1) Life interest trust in a will: the surviving spouse gets a right to live in the property; on their death it passes to children. No immediate CGT or SDLT; outside the survivor's estate for care fees assessment. (2) Equity release: raise cash from the home's value and give cash gifts (PETs) to children; the home remains in your estate. (3) Downsizing: sell, buy something smaller, give the proceeds to children as PETs. (4) Nil rate band discretionary trust: directs NRB assets into trust on first death, partially sheltering the estate. Each option has different tax and practical implications — take professional advice.
Estate planning starts with a solid will
Whether you plan to gift property now or leave it through your will, the starting point is a clear, correctly executed will that reflects your current intentions. WillSafe’s DIY will kit is your foundation.
Get the will kit →Related guides
- Putting your house in trust — how it works
- Life interest trusts in wills
- The 7-year rule for IHT gifts
- Deed of gift — what it is and when to use one
- Inheritance tax on property UK
- Care home fees and property — what you need to know