Does capital gains tax (CGT) apply when gifting a property?
Gifting a property can be a way of reducing your Inheritance Tax liability however, it is important to be aware of other taxes, such as capital gains tax, which may be incurred.
Certain taxes will be due depending on specific factors such as, who the property is gifted to, the age of the person receiving the gift and whether or not the property has a mortgage associated with it.
When is capital gains tax due?
When a property is given away, it is deemed as disposal for CGT purposes. This will apply when a property is sold that has not been the main residence for the entire time it has been owned.
If a property has always been rented out (buy-to-let) tax will be due on the entire time period it has been owned. However, if the property has been used as a mixture of buy-to-let and as a main residence, the tax owed will be split accordingly.
CGT will be due where there has been an increase in the value of the property since it was purchased, minus any expenses such as stamp duty.
If a property is gifted or sold at less than market value, taxes will still be levied as if the property was being sold at market value. This is providing the person receiving the gift is a connected person.
A connected person is classed as a parent, grandparent or child however, it does not include cousins.
In most cases, capital gains tax will not be due when gifting to a husband, wife, civil partner or charity however, there can be some exceptions.
For the 2021/22 tax year, the annual allowance stands at £12,300. Any gain over this amount will be taxed at either 18% for basic-rate taxpayers or 28% for higher-rate taxpayers.
For example, if the gain is £15,000 only £2,700 will be taxed at either 18% or 28%, depending on the rate of tax in which you pay (providing there are no other gains deducted from the annual allowance).
Want to find out more?
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