In the UK, when you gift property, there can be implications for Capital Gains Tax (CGT), even though no money changes hands in the transaction. Here’s a general outline of how it works:
1. Gifted Property and Capital Gains Tax
When you gift a property (such as real estate or shares), HMRC treats this as a disposal for tax purposes, even if no money is received. This means you could be liable for Capital Gains Tax (CGT) on any increase in the value of the property since you acquired it.
Key Points:
- Market Value: The property is treated as being “disposed of” at its market value on the date of the gift, not necessarily the price the recipient may pay (which can be £0 if it’s a pure gift).
- Capital Gains: If the property’s market value has risen since you purchased it, you may have to pay CGT on the gain. The gain is calculated as the difference between the market value at the time of the gift and the price you paid for the property.
- Exemptions: There are some exemptions and reliefs that may reduce or eliminate CGT when gifting property, such as Private Residence Relief (if it’s your home) or Gift Hold-Over Relief.
2. Gift Hold-Over Relief
If you’re gifting certain types of assets, such as business assets or agricultural property, Gift Hold-Over Relief may apply. This means that the CGT liability is not triggered immediately but is instead deferred until the recipient sells or disposes of the property in the future.
- This can be a good option if you want to avoid paying CGT upfront.
- The recipient may have to pay CGT on the gain when they dispose of the asset (e.g., sell the property) rather than you paying it at the time of the gift.
3. Inheritance Tax (IHT) Considerations
Gifting property can also have potential Inheritance Tax (IHT) implications, particularly if you were to die within 7 years of making the gift. The value of the property may be considered part of your estate for IHT purposes, although there are exemptions, such as the annual gift exemption or small gifts exemption.
- If you live for 7 years after making the gift, it will generally not be subject to IHT.
4. Residential Property
If the property you’re gifting is your main home, Private Residence Relief may apply to reduce or eliminate the CGT liability. However, if it was not your main home for the entire time you owned it, or if it has been rented out, there may be CGT on the gain in the value of the property.
5. Additional Considerations
- Joint Ownership: If the property is co-owned, you’ll need to consider how the gift is structured (whether it’s a full or partial gift).
- Family Home vs. Investment Property: The rules can differ depending on whether the property was your primary residence or an investment property.
What You Should Do
If you’re planning to gift property, it’s advisable to: