Gifting property to family members triggers capital gains tax in most cases, even though no money changes hands. The connected persons rule in TCGA 1992 s17 imposes market value as the deemed consideration for the disposal, so the donor pays CGT on the gain over their original base cost. This catches many families by surprise. This guide covers when CGT is due, the four main reliefs available, the interaction with inheritance tax and SDLT, and a series of worked examples for the most common scenarios (parent to adult child, spousal transfers, lifetime trust gifts, partial gifts).

The core rule: market value disposal between connected persons

Under TCGA 1992 s17, a disposal between connected persons is treated as taking place at market value, regardless of the actual consideration. Connected persons include:

  • Spouse or civil partner (but these get separate s58 no-gain-no-loss treatment, see below)
  • Parents, grandparents, and other ascendants
  • Children, grandchildren, and other descendants
  • Siblings
  • In-laws (spouses or civil partners of the above)
  • Companies under common control with the individual or their relatives
  • Partners in a business (limited exceptions for arm's-length transactions in the ordinary course of trade)

The "I sold it for £1" strategy does not work. Whatever the legal documents say, HMRC computes CGT on market value at the date of disposal.

Calculating the gain on a property gift

The CGT computation is identical to a regular sale:

Market value at date of gift£X
Less original purchase price(£Y)
Less qualifying improvement costs (capital, not revenue)(£Z)
Less SDLT and legal fees paid on original purchase(£A)
Less legal fees on the gift transfer(£B)
Less Principal Private Residence relief (if applicable)(£C)
Chargeable gain£G
Less £3,000 annual exempt amount (2026-27)(£3,000)
Taxable gain£T
Tax at 18% (basic rate band remaining) or 24% (higher rate)£CGT

Report and pay within 60 days of the gift completion (the Land Registry transfer date) through the HMRC CGT on UK property service. Even if PPR or other relief eliminates the tax, the disposal still needs reporting where CGT would otherwise have been due.

The four main reliefs

1. Spouse / civil partner: TCGA 1992 s58 (no gain, no loss)

Transfers between spouses or civil partners living together are treated as taking place for a consideration that produces neither gain nor loss. The recipient takes the transferor's base cost and acquisition date. No CGT arises. No annual exempt amount is used. This is the most powerful and most common CGT planning route in family situations.

Practical use: a higher rate husband owns a BTL with a £100,000 latent gain. Before selling, he transfers 50% to his basic rate wife under s58 (no CGT triggered). On subsequent sale to a third party, he pays 24% on his half and she pays 18% on hers (until her basic rate band is filled), and both use a £3,000 annual exempt amount. The tax saving on £100,000 of gain is roughly £6,000 to £9,000.

The transfer must be a genuine, documented transfer of beneficial ownership. Use a Deed of Trust and (where the legal title is to be changed) update Land Registry. Married couples who only file Form 17 without an underlying Deed of Trust risk HMRC challenging the substance.

2. Principal Private Residence relief: TCGA 1992 s222 to s224

If the property was your main residence at any point, PPR exempts the gain attributable to the periods of actual occupation plus the final 9 months of ownership (36 months for disabled people moving into care). The formula is:

PPR relief = Total gain × (months of occupation + 9) / total months of ownership

Letting Relief, post the April 2020 reforms, is only available where you occupied the property as your only or main residence in shared occupancy with the tenant (e.g., taking in lodgers). Most ordinary BTL scenarios no longer qualify for Letting Relief.

See our PPR calculation walkthrough for the mechanics.

3. Section 165 holdover relief: gifts of business assets

Section 165 TCGA 1992 lets the donor and donee jointly elect to defer the gain on a gift of qualifying business assets. The donor pays no CGT now. The donee takes the donor's base cost (so they inherit the latent gain and pay it on their eventual disposal).

Qualifying assets include:

  • Assets used in a trade carried on by the donor
  • Unquoted shares and securities in a trading company where the donor was an officer or employee
  • Assets used in a partnership in which the donor was a partner
  • Certain agricultural property

Critically, residential BTL property held as investment does NOT qualify. The activity must be a trade. A short-stay accommodation business with significant services (cleaning, breakfast, concierge) might qualify; a passive long-term let does not.

4. Section 260 holdover relief: gifts to relevant property trusts

Section 260 TCGA 1992 provides holdover relief on gifts that are immediately chargeable to inheritance tax. The most common case is a gift into a discretionary trust (which is a chargeable lifetime transfer for IHT). The donor and trustees jointly elect to hold over the gain.

The catch: if the gift exceeds the donor's nil-rate band (£325,000), IHT is immediately due on the excess at 20% (the lifetime rate). For high-value gifts this is often the wrong route. For gifts of modest value with significant latent gains it can be useful.

The trust then holds the property, with potential ten-yearly anniversary IHT charges and exit charges when the property leaves the trust. Trust structures need careful long-term planning.

Worked example 1: parent gifts BTL to adult child

Margaret bought a flat in 2009 for £180,000 (SDLT £1,800, legal fees £1,200). She has held it as a BTL throughout. Current market value £350,000. She gifts it to her son David in 2026-27. Margaret is a higher rate taxpayer.

Market value at gift£350,000
Less original cost + SDLT + legal fees(£183,000)
Less legal fees on the gift (£800)(£800)
Chargeable gain£166,200
Less £3,000 annual exempt amount(£3,000)
Taxable gain£163,200
CGT at 24% (higher rate, BTL is investment so no s165)£39,168

Margaret must report and pay this within 60 days of the legal transfer through the HMRC CGT on UK property service. She receives no money, so the £39,168 is real cash she needs to find from other resources.

If she dies within 7 years of the gift, the £350,000 value at gift comes back into her estate for IHT, with tapering between years 3 and 7. CGT paid is not refunded on death.

Worked example 2: same gift but split via spouse first

Margaret transfers 50% of the flat to her husband Tom (basic rate taxpayer) before gifting to David. Tom and Margaret then each gift their 50% share to David in the same tax year.

Margaret's half: gain £83,100, less £3,000 AEA, taxable £80,100 at 24%£19,224
Tom's half: gain £83,100 (taking Margaret's base cost), less £3,000 AEA, taxable £80,100
Tom's tax (£37,700 of basic rate band remaining, then higher rate)~£17,033
Combined CGT£36,257

Saving of around £2,900 versus the single-donor gift. Larger savings are possible where the spouse has more basic rate band available, or where the gain straddles two tax years and uses two annual exemptions per spouse.

Worked example 3: gift of a former main residence

Tony bought a house in 2010 for £200,000, lived in it for 5 years, then let it out for 7 years. Gifts to his daughter in 2026 at market value £400,000.

  • Total ownership period: 12 years = 144 months
  • Period of actual occupation: 60 months
  • Final 9 months always exempt
  • Total PPR-eligible months: 69 / 144 = 47.9%
  • Gross gain: £200,000
  • PPR-exempt portion: £200,000 × 47.9% = £95,800
  • Chargeable gain: £104,200
  • Less £3,000 AEA: £101,200 taxable at 24% higher rate
  • CGT: £24,288

PPR has reduced the CGT from £47,328 to £24,288 (£23,040 saving).

Worked example 4: gift to discretionary trust using s260 holdover

Sarah gifts a BTL flat worth £300,000 (base cost £150,000, latent gain £150,000) into a discretionary trust for her three minor grandchildren in 2026-27. Sarah has not made any prior chargeable transfers in the last 7 years.

  • For CGT: s260 holdover applies because the gift is a chargeable lifetime transfer for IHT. No CGT now; the trust takes the £150,000 base cost.
  • For IHT: gift value £300,000, within the £325,000 nil-rate band, so no immediate IHT charge.
  • For SDLT: assuming no mortgage assumed by the trust, no SDLT charge.
  • Future: the trust will face ten-yearly anniversary IHT charges (currently 6% maximum) and an exit charge when the property is distributed to a grandchild.

Sarah has deferred £36,000 of CGT (24% of £150,000) by using s260. The cost is the long-term trust IHT regime and the loss of access to the property's value during her lifetime. Suitable for some family situations, not others.

SDLT on property gifts

Pure gift of unencumbered property with no cash or other consideration: zero SDLT.

Gift of property where the donee assumes an outstanding mortgage: SDLT on the mortgage value treated as consideration. The 5% additional dwellings surcharge (raised from 3% on 31 October 2024) applies if the donee already owns another dwelling. So gifting a £600,000 property with a £400,000 mortgage to a child who owns their main home triggers SDLT of approximately £25,000 (standard SDLT on £400,000 plus 5% × £400,000 surcharge).

This often makes "redeem the mortgage before gifting" the right answer to avoid the SDLT charge entirely, even if it requires the donor to find the cash.

IHT and the seven-year clock

A gift to an individual (other than a spouse) is a Potentially Exempt Transfer for inheritance tax. If the donor survives seven years, the gift falls fully outside the estate. Death within seven years brings the gift value (at date of gift) back into the estate:

  • 0 to 3 years: full 40% IHT charge on the gift value above the nil-rate band
  • 3 to 4 years: 80% of the IHT charge (effective 32%)
  • 4 to 5 years: 60% (effective 24%)
  • 5 to 6 years: 40% (effective 16%)
  • 6 to 7 years: 20% (effective 8%)
  • 7+ years: 0%

This is "taper relief" on the IHT itself, not on the gift value. It only operates above the nil-rate band. CGT paid at the time of the gift is not credited against any subsequent IHT charge.

The donee's tax position after the gift

The donee takes the property at the gifted market value as their CGT base cost (unless a holdover election applied, in which case they take the donor's lower base cost). From the date of gift, they receive any rental income on their own self assessment, file SA105 (or are pulled into MTD for ITSA if their combined gross income exceeds the relevant threshold), and stand in the donor's shoes for future capital improvement records and tax history.

The donee does not pay income tax on receiving the property itself. They will pay income tax on rental profits going forward (subject to Section 24 if held personally), and CGT on any future disposal calculated against their new base cost.

Family Investment Companies as an alternative

For estates with substantial residential property holdings (typically £1.5 million+), a Family Investment Company can be a more controlled lifetime planning structure than direct gifting. The founder retains voting shares and (initially) growth shares. As children reach adulthood, growth shares are gifted to them; future capital appreciation accrues to them, freezing the founder's estate for IHT purposes.

Transferring property INTO the FIC is itself a disposal at market value for CGT (s17), so the same gift-tax problem arises at the founding moment. Section 162 incorporation relief may roll over the gain if the property is part of a qualifying business (broadly five or more properties actively managed). Set-up cost £8,000 to £15,000, ongoing compliance £3,000 to £6,000 a year.

Common mistakes when gifting property

  • Assuming no tax applies because no money changes hands. CGT at market value still applies under s17.
  • Skipping the 60-day CGT return. Even where reliefs eliminate the tax, the return is still required where CGT would otherwise have been due.
  • Using an unrealistic valuation. HMRC challenges valuations regularly. Use a RICS-qualified surveyor with a written report dated to the gift date.
  • Assuming s165 holdover applies to BTL. It almost never does. Investment activity is excluded.
  • Ignoring SDLT on assumed mortgages. Gifting an encumbered property without redeeming the mortgage triggers SDLT at full residential rates including the 5% surcharge.
  • Forgetting the seven-year IHT clock. Older donors should consider whether to insure the IHT exposure during the seven-year window.
  • Gifting without a Deed of Trust on partial ownership. Where you keep legal title but want beneficial ownership to shift, a written Deed of Trust is essential evidence.
  • Misjudging the donee's tax position. A higher rate donee inheriting rental income may face more tax than the donor was paying.

Next steps

For supporting reading, see our CGT on UK property complete guide, our PPR relief calculation walkthrough, and our IHT on rental property guide.

If you are planning a property gift in the current or next tax year and want the tax cost modelled before you commit, send us your property purchase history and current valuation using the form below. Initial calls are free and we will tell you whether a different route (s58 spousal pre-gifting, s260 trust route, FIC structure) saves you meaningful tax.