Gifting Property and Inheritance Tax UK: IHT, CGT, and SDLT When You Give Property Away (2026)
Gifting investment or buy-to-let property to a child starts the 7-year IHT clock (PET) — the property is IHT-free after 7 years. But beware: CGT is immediately payable on the gain since purchase (no holdover relief for direct gifts to individuals). SDLT applies if there is a mortgage to assume. Gifting with a clean break — no retained benefit — avoids the gift with reservation rules.
| Gift Type | IHT Treatment | CGT on Gift | CGT Holdover? | SDLT |
|---|---|---|---|---|
| Main home to child (genuine gift, move out) | PET — 7yr IHT-free | Nil (Private Residence Relief) | N/A — no CGT | Nil if no mortgage |
| Buy-to-let / investment property to child | PET — IHT-free after 7yr | Yes — market value at gift date | No holdover on PETs | Nil if no mortgage; SDLT on mortgage assumed |
| Investment property into discretionary trust | CLT — 20% above NRB (£325k) | Yes — but s260 holdover available | Yes — s260 TCGA (CLT holdover) | SDLT on market value if over threshold |
| Gift to spouse (any property) | Exempt (s18 IHTA spousal exemption) | No gain/no loss (s58 TCGA) | N/A | Nil between spouses |
| Property with retained benefit (live there rent-free) | GWR — stays in estate s102 FA1986 | N/A (not a real gift for IHT) | N/A | Nil |
| Buy-to-let given away; donor receives rent informally | Potential GWR challenge | Payable at gift date | No holdover on PETs | Nil if no mortgage |
| Agricultural land (farming use) to child | PET — may qualify for APR on death | Business holdover (s165 TCGA) if farming | Yes — s165 if agricultural | Nil if no consideration |
2026/27. CGT rates on residential property: 18% basic rate, 24% higher/additional rate (from 6 April 2024). Annual CGT exemption: £3,000. SDLT additional dwelling surcharge: 3% on residential properties where buyer already owns another. APR: £1m combined BPR/APR cap from April 2026; 50% above cap.
Gifting Property and IHT: Complete Guide
IHT on gifting property — the PET and the 7-year rule
A gift of property (including buy-to-let, investment property, and land) to an individual is a Potentially Exempt Transfer (PET — s3A IHTA 1984). Key features of a PET on property: (1) Immediately IHT-free: at the moment of the gift, no IHT arises; (2) 7-year survival: if the donor survives 7 years from the date of the gift, the PET becomes fully exempt — the property is permanently out of the IHT estate; (3) Failed PETs (donor dies within 7 years): the value of the property at the date of the gift (not the value on death) is brought back into the estate for IHT; taper relief applies if death occurs in years 3-7 (20%/40%/60%/80% reduction in the IHT on the transfer in years 3-4/4-5/5-6/6-7); (4) The IHT value: the property is valued at the date of the gift. If property values have risen since the gift, the IHT calculation uses the lower gift-date value — a significant advantage for rising property markets; (5) Gift with reservation (s102 FA1986): if the donor gifts the property but retains a benefit in it (e.g., continues to live there rent-free), the GWR rules apply and the property stays in the IHT estate as if never given away. Giving away a rental property and ceasing to be involved in the property does NOT trigger GWR — the donor has given away the asset entirely.
CGT on gifting property — the deemed disposal at market value
A gift of property is treated for Capital Gains Tax as a disposal at the property's market value at the date of the gift (s17 TCGA 1992 — the 'connected persons' rule). This applies even if no money changes hands and even if the property is given to a child. CGT is calculated on: market value at gift date minus original acquisition cost minus allowable expenditure (improvements, buying/selling costs) = chargeable gain. Tax rate: 18% (basic rate taxpayer) or 24% (higher/additional rate taxpayer) on residential property gains (from 6 April 2024). Annual CGT exemption: £3,000 per person (2026/27). Exemptions: main residence (Private Residence Relief — s222 TCGA) means nil CGT on the gifted property if it was the donor's main home throughout ownership. This only applies to the main home — buy-to-let, holiday homes, and investment property do not qualify for PRR. Gift to spouse: inter-spouse gifts are at 'no gain/no loss' (s58 TCGA 1992) — no CGT on gifts between spouses. This applies to property as well. Gift to child or other individuals: full CGT at market value applies. CGT is payable via self-assessment and on residential property sales also requires a 60-day report within 60 days of the disposal.
Holdover relief — available for CLTs but NOT for PETs
Holdover relief (gift relief) allows the CGT gain on a property gift to be 'held over' — deferred to the recipient, who inherits the donor's cost base. There are two types: (1) Business asset holdover relief (s165 TCGA 1992): available on gifts of qualifying business assets — land and property used in a trade; shares in unquoted trading companies; agricultural property used in farming. NOT available on buy-to-let or investment properties (these are not trading assets — they are investment assets); (2) Holdover relief on a CLT (s260 TCGA 1992): available on the gift of ANY asset (including investment property) where the gift is a Chargeable Lifetime Transfer (CLT) — i.e., a gift into a discretionary trust, not a gift to an individual. The practical implication for property gifting: Gifting property to a child directly (a PET): NO holdover relief — the donor pays CGT in the year of the gift on the full gain at market value. Gifting property into a discretionary trust (a CLT): s260 holdover relief available — CGT deferred; trust inherits the donor's base cost. The trust then holds the property — subject to the relevant property regime (periodic charges, exit charges). The choice between a PET (to child, no IHT relief on gift, CGT payable now) and a CLT (to trust, IHT relief deferred, CGT holdover available) depends on the relative size of the CGT gain versus the IHT saving.
SDLT on gifting property — when Stamp Duty Land Tax applies
Stamp Duty Land Tax (SDLT) applies to property transactions — but a gift (transfer for nil consideration) is only a chargeable transaction if there is chargeable consideration. Consideration includes: (1) Nil consideration (pure gift, no mortgage): SDLT = £0. The recipient files an SDLT return if the property value exceeds £40,000, but no tax is payable; (2) Gift with mortgage assumed: if the recipient takes over the mortgage on the gifted property, the mortgage value is treated as chargeable consideration (s62 FA2003 SDLT). SDLT is then calculated on the outstanding mortgage amount at the applicable rates — including higher rates for additional dwellings (3% surcharge for residential property) if the recipient already owns another property. Example: gift a £300,000 buy-to-let with a £120,000 outstanding mortgage. SDLT is calculated on £120,000 at the standard rates plus the 3% additional dwelling surcharge (if applicable); (3) Gift for less than market value (connected persons discount): a sale at a significant undervalue (e.g., selling a £500,000 property to a child for £100,000) is treated as a disposal at the actual consideration for SDLT (the £100,000) but at market value for CGT (the £500,000). This means SDLT is lower on undervalue sales. Note: the gift/undervalue transfer must be genuine — at arm's length — not a way to avoid SDLT on a true sale. HMRC anti-avoidance rules apply.
Gift with reservation — does gifting a rental property trigger s102 FA1986?
Gift with reservation (GWR — s102 FA1986) applies where: the donor makes a gift of an asset but retains a benefit in that asset. The result: the asset is treated as remaining in the donor's estate for IHT as if the gift was never made. For the family home: very commonly triggered. If the parent gives the home to the children but continues to live there rent-free (or below market rent), the property is a GWR and stays in the estate. For rental property (buy-to-let): the analysis is different. If the parent gives the buy-to-let to their child and: (a) the child becomes the landlord and receives the rent from tenants; and (b) the parent has no further involvement with the property — no GWR. The parent did not reserve a benefit in the property. The parent is not living there or using it. However: if the donor retains the right to direct the property or receive income from it informally, HMRC may challenge this. For clarity, a formal deed of gift (legal transfer of title) with a clean break from the property's finances is essential. Pre-owned assets tax (POAT — Finance Act 2004): POAT is a separate income tax charge (not IHT) on the donor where they escape GWR but the arrangement was intended to give value — e.g., a complex scheme to give away property while retaining indirect benefit. Straightforward gifting of a rental property to a child with a clean transfer of title and all rental income flowing to the child does NOT trigger POAT.
Frequently Asked Questions
Do you pay inheritance tax when you gift property?
At the time of a gift of property to an individual (a PET — s3A IHTA 1984): no IHT is immediately due. If the donor survives 7 years from the date of the gift, it becomes fully IHT-free. If the donor dies within 7 years, the property value at the date of the gift is included in the IHT estate — with taper relief reducing the IHT if death occurs in years 3-7. Gift of property into a discretionary trust (a CLT): 20% IHT on the amount above the NRB (£325,000) is immediately due at the time of the gift.
Do you pay capital gains tax when you gift property?
Yes — a gift of property is treated as a disposal at market value (s17 TCGA 1992), regardless of whether money changes hands. CGT is calculated on the gain (market value at gift date minus original cost). Rate: 18% (basic rate) or 24% (higher rate) on residential property gains (2026/27). Exception: the main home (private residence relief — s222 TCGA) is CGT-free. Buy-to-let and investment property: CGT applies at market value. Holdover relief: available on gifts into discretionary trusts (CLTs — s260 TCGA), but NOT on PETs (direct gifts to individuals).
Does gifting a buy-to-let property avoid inheritance tax?
A gift of buy-to-let property to an individual (a PET — s3A IHTA 1984) is IHT-free after 7 years. If the donor survives 7 years and the gift was genuine (the property fully transferred, the donor receives no benefit from it), the property is permanently outside the IHT estate. The 7-year clock starts on the date of the gift. Important: CGT is payable immediately on the gain in the property's value since purchase (no holdover relief for PETs on investment property). SDLT may apply if the property carries a mortgage that is assumed by the recipient.
Does Stamp Duty apply when gifting property?
A pure gift (nil consideration, no mortgage) requires an SDLT return (if value over £40,000) but no SDLT is payable. If the property has a mortgage that the recipient assumes (takes over), SDLT is calculated on the outstanding mortgage amount — including the higher rate for additional dwellings (3% surcharge) if the recipient already owns other property. Example: £120,000 mortgage assumed on a gifted BTL = SDLT on £120,000 at rates plus the additional dwelling surcharge.
Does gifting a rental property trigger gift with reservation rules?
Not if the gift is genuine and complete. Gift with reservation (s102 FA1986) applies where the donor retains a benefit in the gifted asset. Gifting a buy-to-let to a child and transferring all rights (title, rental income, landlord responsibilities) to the child does NOT trigger GWR — the donor has no ongoing benefit in the property. GWR would be triggered if the donor continued to receive rent or maintained control over the property. The main risk for property GWR is the family home — if the parent gives the home to a child but continues living there rent-free, GWR applies and the home remains in the estate.
Update Your Will After Gifting Property
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