When a property is gifted, HMRC treats the transaction as a disposal at market value, even though no money is exchanged. This means that if the property's value has increased since it was originally purchased, the parent may be liable for CGT on the gain. 

 

It is also worth highlighting the 60-day CGT reporting requirement. If CGT is due on the disposal of a UK residential property, the parent must report and pay the tax within 60 days of the transfer. Failure to do so can result in penalties and interest charges. 

 

However, if the property has always been the parent's main residence, Private Residence Relief may apply, potentially eliminating or reducing the CGT liability. If the property has been rented out or used for other purposes, partial relief may be available. 

SDLT is not usually payable on a property that is gifted with no consideration, meaning no money or other compensation is exchanged. However, if the child takes over an existing mortgage on the property, the outstanding mortgage balance is treated as consideration. If this amount exceeds the SDLT threshold, SDLT will be payable based on the value of the assumed debt. 

 

For example, if a property is transferred with an outstanding mortgage of £300,000, the child will be liable for SDLT on the mortgage amount, calculated based on the applicable SDLT rates and thresholds. 

 

A variation on this scenario arises when a parent gifts a property to a limited company. Even if the parent is not a shareholder or director of the company, HMRC typically treats this as a transfer between connected parties. As a result, the transaction is deemed to occur at market value for both Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) purposes. This can trigger a sizeable SDLT charge based on the market value of the property, rather than just any outstanding mortgage. It's therefore crucial to weigh up the potential SDLT cost against the possible long-term benefits of holding the property in a limited company, and this is something we can assist you with at Property Tax Advice. 

Beyond CGT and SDLT, it is also important to consider potential Inheritance Tax (IHT) implications. If the property is given as an outright gift, it is considered a potentially exempt transfer (PET) for IHT purposes. No tax is due at the time of the gift, and if the parent survives for seven years, the transfer remains tax-free. However, if the parent passes away within seven years, the property's value may be subject to IHT, with tax tapering depending on how long they lived after making the gift. 

 

If a parent continues to benefit from the property after gifting it - such as giving their home to a child but still living there - it may be classified as a gift with reservation of benefit. 

 

In addition to the standard IHT threshold, an additional Residence Nil Rate Band (RNRB) of up to £175,000 may apply when passing on a main residence to direct descendants, such as children or grandchildren. This allowance can reduce the overall IHT liability on an estate, potentially increasing the tax-free threshold for inheritance tax purposes. To qualify, the parent must leave the property (or a share of it) to their children or grandchildren in their will. If an estate exceeds £2 million, the RNRB is tapered, reducing by £1 for every £2 over the threshold. 

 

To conclude, gifting property from parent to child may trigger significant tax liabilities. CGT may apply based on the market value of the property, with a strict 60-day reporting requirement if tax is due. SDLT may also be a factor if the child assumes responsibility for an existing mortgage. Additionally, the seven-year rule for IHT should be considered in long-term estate planning, alongside the potential benefits of the £175,000 Residence Nil Rate Band when passing on a main residence. 

 

Given the complexities involved, seeking professional tax advice is recommended to ensure compliance and optimise tax efficiency when transferring property to family members.