How to Gift Property to Your Children in the UK: Tax and Practical Considerations

Why people gift property to children

The most common motivations are:

1. Reduce inheritance tax: gifts made more than 7 years before death are outside the estate for IHT purposes

2. Help children onto the property ladder: putting them in a position to live in or rent out the property

3. Avoid probate complications: removing assets from the estate makes administering the estate simpler

4. Use the family allowance more efficiently: spreading wealth across generations early

The IHT motivation is the dominant one for most owners considering this. A property worth £400,000 left in the estate may attract IHT of £160,000 on the second death of a couple. The same property gifted 7 years before death may avoid that bill entirely.

The three tax issues

Gifting property creates issues with three different taxes simultaneously. All three need to be addressed, and each can wipe out the savings from the other.

1. Inheritance Tax (IHT) and the 7-year rule

A gift of property is a "Potentially Exempt Transfer" (PET) for IHT. If you survive 7 years from the date of the gift, the gift is fully outside your estate. If you die within 7 years, the gift is added back to your estate, although taper relief reduces the IHT due on a sliding scale:

• Within 3 years: full IHT
• 3 to 4 years: 80% of IHT
• 4 to 5 years: 60%
• 5 to 6 years: 40%
• 6 to 7 years: 20%
• 7+ years: 0%

The taper relief only applies to the gift itself, not to the underlying inheritance tax, so for smaller gifts within the nil rate band the relief has no effect.

2. Capital Gains Tax (CGT)

A gift of property is treated by HMRC as a sale at market value, even though no money changes hands. The donor is deemed to have received the market value and is taxed on the gain. CGT applies at 18% (basic rate) or 24% (higher rate) on residential property gains.

If the property has been your main home throughout ownership, Private Residence Relief usually exempts the gain. If it is a second home or buy-to-let, CGT applies in full.

Worked example: a buy-to-let bought for £150,000 in 2010 and gifted to a child in 2026 when worth £350,000.

• Deemed gain: £200,000
• Annual allowance: £3,000
• Taxable gain: £197,000
• CGT at 24%: £47,280

The donor pays £47,280 to HMRC even though they received no money.

3. Stamp Duty Land Tax (SDLT)

Gifts where no money or debt is involved do not normally attract SDLT. But if the recipient takes on a mortgage as part of the transfer, SDLT can apply on the value of the debt taken over.

For example, a parent gifts a £400,000 property to a child but the property has a £200,000 mortgage that the child will assume. SDLT may apply on the £200,000 mortgage assumption, potentially at the higher rate (because it is an additional property to the child).

If the gift is unmortgaged or the parent pays off the mortgage before the gift, SDLT does not arise.

Gift with reservation of benefit

The most common mistake is to gift the property but continue to live in it rent-free. HMRC treats this as a "gift with reservation of benefit" (GROB). The gift is ignored for IHT purposes and the property is treated as still being in your estate at death, completely defeating the IHT motivation.

To avoid GROB, you must either:

1. Move out completely after the gift, OR

2. Pay full market rent to your child for as long as you live there, with the rent adjusted regularly to market levels

Paying market rent has its own complications: the child receives taxable rental income, and the amounts must be documented properly. For most families this is impractical or undesirable.

Pre-owned assets tax

If GROB does not apply but you still benefit from the gifted asset (for example, you live there for free for short periods), HMRC can apply Pre-Owned Assets Tax (POAT). POAT charges income tax on the deemed benefit you receive each year. POAT is rare in residential gifting cases but specialist advice is needed if you are considering any arrangement other than a clean outright gift.

Practical alternatives

For most families, an outright gift is not the right answer because of GROB issues. The practical alternatives include:

1. Trust ownership

Putting the property into a trust. The trust holds the legal ownership, the children are beneficiaries. Trusts have their own tax regime and ongoing administration costs but can be the right answer for larger estates. Specialist advice is essential.

2. Equity release combined with gifting cash

Releasing equity from the home, gifting the cash to children (which is a clean PET), and continuing to live in the property as before. The interest on the equity release reduces the estate value over time.

3. Lifetime gifts of cash, not property

Selling investments or savings each year and gifting cash within the annual exemptions and small gift allowances. Less tax-efficient than property gifting in raw terms but avoids all the GROB and CGT complications.

4. Life insurance written into trust

Buying a life insurance policy written into trust to cover the expected IHT bill. The payout pays the IHT so children do not need to sell the home. Premiums paid from surplus income do not count as gifts.

5. Discounted Gift Trust

A specific trust structure that allows you to gift assets while retaining an income. The discount applied to the gift value reduces the IHT exposure. Complex and needs specialist advice.

Common scenarios and what they actually cost

1. Outright gift of mortgage-free buy-to-let to children, donor moves to a different home: CGT on the gain at 24%, no SDLT, IHT outside the estate after 7 years. Net result is usually significant IHT savings minus CGT cost.

2. Outright gift of main home to children, donor stays living there rent-free: GROB applies, no IHT saving, no CGT (PRR), no SDLT. Net result is no benefit and potentially complications when the children's own circumstances change.

3. Outright gift of main home, donor moves to a smaller place: PRR applies (no CGT), no SDLT (no money changes hands), IHT outside the estate after 7 years. Most efficient outright gifting scenario but only works if the donor genuinely moves.

4. Gift via trust: complicated, has trust tax consequences, but can solve GROB and CGT issues.

Get professional advice

The interaction of IHT, CGT, SDLT, GROB, POAT, and trust law makes property gifting one of the most complex areas of tax planning. Specialist advice from a chartered tax adviser is essential before doing anything. The cost of advice is small compared to the cost of getting it wrong.

For the underlying property data, search the address on Property Passport UK at [/search](/search). The platform shows verified tenure, EPC rating, full sold price history from HM Land Registry, flood risk, and other facts that you and your adviser will need for any gift decision.

Look up the property data behind your tax decisions

Property Passport UK shows verified data for every one of the 19.35 million properties in England and Wales: tenure, EPC, sold prices, flood risk, listed status. Use it to research before you buy a second home, plan a sale, or work out a tax position. Search any address at [/search](/search). Every fact comes from an official UK government source.

Related guides

• Stamp duty second home explained
• CGT on second home UK
• Private residence relief explained
• Inheritance tax on property