Gifting property – Does capital gains tax apply?

Gifting property - Does capital gains tax apply?

Gifting a property can be a way of reducing your Inheritance Tax liability. However, it is important to be aware that other taxes, such as capital gains tax, may be levied.

HMRC deems the act of giving away your property as a disposal for capital gains tax purposes. This applies when a property is sold that has not been the main residence for the entire time of ownership.

If a buy-to-let rental property has always been rented, tax will be due on the entire time of ownership. Whereas, property used as a mixture of buy-to-let and as the main home, will result in the tax owed being split.

gifting property
Capital gains tax will be due where there has been an increase in the value of the property since the purchase. Meanwhile, deductions apply to expenses such as stamp duty.
Property that is sold or gifted below market value will be taxed as if it was sold/gifted at market value. This is providing the person receiving the gift is a connected person.
A parent, grandparent, or child are all classed as a connected person. Although, cousins are not included. 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.

Annual Allowance

For the 2022/23 tax year, the annual allowance stands at £12,300. Any gains 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%. This is providing there are no other gains deducted from the annual allowance. 
The rate of tax you pay corresponds with your income tax rate. Basic rate taxpayers are liable for 18% CGT, whilst higher rate taxpayers are liable for 28% CGT.

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This guide is an informative piece and does not constitute tax advice for individual matters.