The question most often asked of an estate planner is the simplest one. Should I give the property to my children now, or pass it on when I die? Most generalist content treats this as a pure inheritance tax question. The truth is that the decision is dominated by a different factor that most readers do not see until it is too late.

That factor is the capital gains tax uplift on death under TCGA 1992 s.62. When you die, your beneficiaries inherit your assets at market value at the date of death. Any gain accrued during your ownership is wiped out for CGT purposes. The deceased pays no CGT and the beneficiary's CGT base cost is the probate value.

This single rule changes the lifetime-versus-death maths for appreciated property in a way the IHT-only analysis cannot capture. For a £800,000 BTL bought for £200,000 in 1992, the latent gain is £600,000. A lifetime gift to a child crystallises that gain immediately at 24% residential CGT under TCGA 1992 s.17 (market-value disposal between connected persons), costing the donor £144,000 of CGT today. Hold-to-death wipes the gain entirely.

This page is the comparative decision pillar. It works the lifetime gift route against the death route on four axes: IHT outcome, CGT outcome, control and family circumstance, and spouse-exemption baseline. The Carrington-family £800,000 BTL example threads four routes with quantitative outcomes and an actuarial reality check that the competitor field largely omits.

The IHT-only frame: where most content stops

The IHT-only frame is straightforward. A lifetime gift from one individual to another is a Potentially Exempt Transfer (PET) under IHTA 1984 s.3A. If the donor survives seven years from the gift date, the PET becomes fully exempt. If the donor dies inside seven years, the PET fails and becomes a chargeable transfer.

For failed PETs, taper relief under IHTA 1984 s.7(4) reduces the IHT charge based on time elapsed:

  • 0-3 years from gift: full rate (40%).
  • 3-4 years: 80% of full rate (32% effective).
  • 4-5 years: 60% of full rate (24% effective).
  • 5-6 years: 40% of full rate (16% effective).
  • 6-7 years: 20% of full rate (8% effective).

The single most important misconception: taper applies to the TAX, not the value of the gift. Gifts within the available nil rate band attract no tax in the first place, so there is nothing to taper. Taper is genuinely useful only for failed PETs above the NRB. For a 78-year-old donor with a £300,000 PET, taper is decorative; the gift sits below NRB and no IHT applies regardless of when death occurs.

On death, IHTA 1984 s.4 deems the deceased to make a transfer of value of the whole estate immediately before death. IHT is charged at 40% on the value above the available nil rate bands. The Residence Nil Rate Band of £175,000 under IHTA 1984 ss.8D-8M is available ONLY at death (lifetime gifts cannot capture it), and only where the home is closely inherited by lineal descendants. The standard NRB of £325,000 is available at both lifetime and death (cumulatively, with the seven-year window).

The CGT silent killer

Now layer in TCGA 1992 s.62. On death, the personal representatives are deemed to acquire all the deceased's assets at market value at the date of death (s.62(1)(a)). No disposal by the deceased; no CGT crystallisation. The latent gain is wiped.

Compare this to a lifetime gift. Under TCGA 1992 s.17, a transfer between connected persons (children, grandchildren and spouses thereof, under s.286) is treated as a disposal at market value regardless of any actual consideration. The donor crystallises the gain on the gift day. For residential property the rate is 24% (higher) or 18% (basic) from 6 April 2024 per Finance Act 2024.

Holdover relief might in theory defer the gain. Two regimes exist:

  • TCGA 1992 s.165 gives gift relief on qualifying trading-business assets. Pure BTL is investment under Pawson v HMRC [2013] UKUT 050 (TCC), excluded.
  • TCGA 1992 s.260 gives holdover on IHT-chargeable transfers. A PET is not an IHT-chargeable transfer (it is potentially exempt), so s.260 does not apply to the standard child-as-PET-recipient case.

The result for a pure BTL gift to a child: full CGT on the gain at 24% on the donor, immediately, with no holdover. The CGT silent killer is doing real work.

The Carrington-family total-tax matrix

Persona: Mr Carrington, widower, age 78. He owns a £800,000 buy-to-let flat in north Bristol (acquired in 1992 for £200,000, latent gain £600,000). Other assets £1,200,000 (cash, ISA, no further property). Net estate £2,000,000. Wife died 2018; spouse exemption used at first death (no IHT paid); transferable NRB of £325,000 claimed via IHT402 on the first death; RNRB and TRNRB are unavailable because the BTL has never been Mr Carrington's residence.

Two adult children, equal beneficiaries on intent. Mr Carrington is in reasonable health for his age but realistic about actuarial probabilities. The question on the table: gift the BTL to the children now, or hold to death.

Route A: hold to death

Mr Carrington does nothing. He updates his will. Death assumed in 2030 (i.e. immediately, for the comparison).

  • CGT: nil. Section 62(1)(a) uplift wipes the £600,000 gain.
  • IHT: net estate £2,000,000. NRB £325,000 + TNRB £325,000 = £650,000 allowance.
  • Chargeable estate £1,350,000 at 40% = £540,000 IHT.
  • Children inherit the BTL at £800,000 probate value (their CGT base cost going forward).
  • Total tax: £540,000.

Route A is the baseline. Substantial IHT, zero CGT, zero cash-flow disruption during life. The children's onward CGT exposure on a subsequent sale is reset to zero on the gain accrued before Mr Carrington's death.

Route B: lifetime PET at five-year survival

Mr Carrington gifts the BTL to the children in 2025 (aged 73 at gift date). Dies in 2030 (aged 78, five-year survival, taper band 5-6 years).

  • CGT on the lifetime gift (immediate): connected-party disposal under s.17 at market value £800,000; gain £600,000 at 24% = £144,000 CGT paid by Mr Carrington in 2025 from cash.
  • The PET fails because Mr Carrington dies within seven years. The £800,000 PET is brought back into the IHT calculation at gift-date value.
  • Cumulative-NRB allocation: PET uses the available £325,000 NRB first; chargeable PET = £475,000.
  • Full-rate IHT on chargeable PET = £190,000. Taper at 40% of full rate (band 5-6 years) = £76,000 IHT on the failed PET.
  • Death estate: £1,200,000 other assets minus £144,000 of cash used to pay the lifetime CGT = £1,056,000. PET has consumed the NRB; only TNRB £325,000 remains. Chargeable death estate £731,000 at 40% = £292,400 IHT on death.
  • Subtotal IHT (failed PET + death) £76,000 + £292,400 = £368,400. Plus CGT £144,000. Total tax: £512,400.
  • Saving vs Route A: £27,600.

Route B saves money but barely. The £144,000 of certain immediate CGT erodes most of the IHT saving from taper. The route is sensitive to actuarial probability: if Mr Carrington had died at four-year survival instead of five-year, the saving narrows further; at three-year survival, taper is zero and the route may be loss-making relative to Route A.

Route C: lifetime PET at seven-year survival

Mr Carrington gifts the BTL in 2023 (aged 71). Dies in 2030 (aged 78, seven-year survival, PET fully exempt).

  • CGT on the lifetime gift (immediate): £144,000 (same as Route B).
  • IHT on the PET: nil (fully exempt at seven years).
  • Death estate £1,200,000 minus £144,000 CGT paid = £1,056,000. NRB £325,000 + TNRB £325,000 = £650,000 allowance.
  • Chargeable death estate £406,000 at 40% = £162,400 IHT on death.
  • Total tax: £162,400 + £144,000 = £306,400.
  • Saving vs Route A: £233,600.

Route C is materially attractive but requires seven-year survival from the gift date. At age 71 (gift) to 78 (death), survival probability across that window is approximately 62% per ONS 2022-2024 life tables for a male of average UK health. The expected-value calculation is therefore: 62% × £233,600 saved (Route C) + 38% × probabilistic intermediate-survival outcomes (Routes B-equivalent at the band-specific tapers). The unconditional expected saving is materially lower than the headline £233,600.

Route D: hold to death plus deed of variation

Mr Carrington does nothing in his lifetime. He dies in 2030. The children inherit the BTL at £800,000 probate value (CGT uplift; baseline IHT £540,000 per Route A). Within two years of death, the children execute a deed of variation under IHTA 1984 s.142 redirecting half their inheritance to their own children (Mr Carrington's grandchildren).

  • For IHT (s.142): the variation reads back to Mr Carrington. The grandchildren are treated as direct beneficiaries of Mr Carrington's estate. No fresh PET by the children; no fresh seven-year clock.
  • For CGT (TCGA 1992 s.62(6)): the redirection is NOT a disposal by the children. The grandchildren acquire at probate value (£800,000), preserving the s.62(1)(a) death uplift.
  • The IHT outcome at Mr Carrington's death is unchanged (£540,000 baseline). The next-generation IHT saving comes from the children NOT holding the redirected inheritance in their own estates, which avoids the value sitting in two more deaths in the family line.
  • Indirect IHT saving across the next two generations: estimated £100,000 to £200,000 depending on the children's own estate sizes and timing.

Route D is unique. It is the only mechanism in UK tax that simultaneously preserves the CGT death uplift AND achieves IHT savings (across generations). The trade-off is that the lifetime planning is replaced by post-death planning by the children, which requires the children to act within two years and to agree the redirection. For families with cooperative adult children, Route D is structurally efficient.

When lifetime gifting still makes sense

The CGT silent killer does not eliminate the lifetime route. Several configurations remain genuinely attractive:

  • Low-gain assets. Cash, near-current-value investments, recently inherited assets at probate value. The CGT cost of crystallising the gain is small or zero; the IHT saving is real.
  • BPR-qualifying business assets. A genuine trading company (not a property-investment company under Pawson) attracts s.165 holdover (no immediate CGT) and 100% BPR below the £2.5m combined cap from 6 April 2026 (IHTA 1984 s.124D as inserted by FA 2026 Sch 12 para 4), so no immediate IHT either. The CLT-into-trust route is the maximally efficient lifetime structure for qualifying assets.
  • Donors with high survival probability. Age 60-70 in good health. Seven-year survival probability above 80% reframes the expected-value calculation in favour of the lifetime route.
  • Family-home with full PRR cover. Where the home is genuinely the principal residence throughout, TCGA 1992 s.222 private residence relief wipes the gain. The CGT cost is zero. The lifetime route becomes more attractive subject to the GROB trap (see below).
  • Income-out-of-income gifting. The normal-expenditure-out-of-income exemption under IHTA 1984 s.21 allows unlimited regular gifts out of surplus income with no seven-year clock at all. High-income donors can move multi-£100,000s out of the estate annually with no IHT exposure on the gifted value.

When hold-to-death dominates

The hold-to-death route is structurally favoured in the following configurations:

  • Appreciated investment property with no PRR. The Carrington-family BTL case. CGT cost on the lifetime gift is large; IHT saving is uncertain.
  • Donor over 75 with limited survival horizon. Seven-year-clock-based planning becomes increasingly speculative. The expected-value calculation tilts toward Route A.
  • Family home. The RNRB is available only on death and is worth up to £175,000 per individual. The GROB rule under FA 1986 s.102 catches most amateur lifetime-gift-of-family-home plans. For the family-home-specific decision menu see our inheritance tax and the family home page.
  • Where the children have cooperative relationships and DoV is realistic. Route D combines CGT uplift and IHT-by-redirection without the lifetime gamble.

The GROB trap

FA 1986 s.102 catches lifetime gifts where the donor reserves a benefit. The most common amateur failure: gift the family home to the children, continue to live there rent-free, "wait seven years". The gift fails as a GROB; the property stays in the estate at death value; the seven-year clock never starts.

Statutory carve-outs survive (full market rent under FA 1986 Sch 20 para 6(1)(a); shared-occupation undivided-share gift under s.102B(4)), but the carve-outs are narrow and disciplined. Most amateur plans fail. For the GROB depth see our GROB s.102 family home shared occupation s.102B UK mechanics page and the gift with reservation of benefit entry-tier orientation.

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The lifetime exemptions stack

Several lifetime exemptions sit alongside the seven-year-clock framework and can substantially reduce the IHT exposure of regular gifting without any CGT trade-off:

  • Annual exemption (s.19). £3,000 per donor per tax year. One-year carry-back of unused. A couple can move £12,000 out of the estate every two years using both individuals' annual exemptions and the carry-back.
  • Small gifts (s.20). £250 per recipient per year. Cannot combine with s.19 to the same recipient. Useful for Christmas and birthday gifts to many grandchildren.
  • Normal expenditure out of income (s.21). Unlimited subject to three statutory conditions. Most powerful exemption available; chronically under-used because of the documentation discipline.
  • Marriage gifts (s.22). £5,000 parent, £2,500 grandparent or party to marriage, £1,000 other.
  • Spouse exemption (s.18). Unlimited where receiving spouse is long-term UK resident. The fundamental first-death exemption.
  • Charity exemption (s.23). Unlimited and a 36% reduced rate on the rest of the estate where at least 10% passes to qualifying charity (Sch 1A IHTA 1984).

The decision sequence

If you are starting the lifetime-versus-death conversation from a blank sheet, work through these questions in order:

  1. What is the gain on the asset (current value minus acquisition cost)? If the gain is small, lifetime gifting carries little CGT cost.
  2. Is the asset BPR-qualifying business property? If yes, the CLT-into-trust route with s.260 holdover and 100% BPR is structurally efficient.
  3. Is the asset the family home with full PRR cover? CGT cost on the lifetime gift is zero; the GROB trap then dominates the analysis. See the family-home decision pillar.
  4. What is the donor's age and health? At 60-70 in good health, the seven-year clock is a sensible bet. At 75+, the actuarial reality narrows the expected gain materially.
  5. Are the children cooperative and likely to act within two years if a DoV is needed? If yes, Route D (hold to death plus DoV) becomes the unique structurally efficient option.
  6. Is the donor a high-income individual with surplus income above lifestyle needs? If yes, the s.21 normal-expenditure-out-of-income route can move substantial value out of the estate without any seven-year-clock exposure.
  7. What is the spouse-exemption position? On first death, s.18 typically eliminates IHT and the planning question is the second death.

The sequence is not linear in practice. The same family will revisit the questions at different life stages.

The bigger picture

The lifetime-versus-death decision is not the IHT-only question most generalist content frames it as. The CGT uplift on death under s.62 is the silent killer for appreciated property. The holdover-relief asymmetry (s.260 available for CLTs into trust but not for PETs to individuals; s.165 available only for qualifying trading business) restricts the routes that defer CGT. The seven-year clock applies to IHT only; CGT crystallises on day one regardless.

For the Carrington-family case the four-route matrix shows that hold-to-death (Route A: £540,000) is the conservative baseline. Lifetime gifting at five-year survival (Route B: £512,400) saves only £27,600 after CGT, sensitive to taper band and survival probability. Lifetime gifting at seven-year survival (Route C: £306,400) saves £233,600 but requires a probabilistic seven-year clock to run. Hold-to-death plus DoV (Route D) preserves the £540,000 baseline at Mr Carrington's death but redirects value across generations without re-crystallising CGT or running a new seven-year clock.

The discipline is to run all four routes against the donor's actual asset position, age, health, and family setup, and to recognise that the "obvious" lifetime-gift route can be the worst-performing option for appreciated property held by older donors. The hold-to-death route is the structurally favoured default; the deed of variation is the structurally unique route that combines CGT uplift and IHT redirection in one mechanism.