Gifting property to your children can be excellent inheritance tax planning, and it can also be a way to pay capital gains tax now, keep the IHT exposure anyway, and lose your home's legal security in the process. The difference between those outcomes is not luck; it is whether three separate tax regimes — CGT, IHT and SDLT — were each checked before the transfer deed was signed. Most of the painful cases we untangle involved someone checking exactly one.
Here is how the three interact, and where the well-known "give the house to the kids" plans go wrong.
Capital gains tax: a gift is a sale at full market value
Giving property away is a disposal for CGT at market value, whatever money changes hands. Gains on residential property are taxed at 18% and 24% in 2026/27, with a £3,000 annual exempt amount, and a UK residential disposal with tax due must be reported and paid within 60 days — gifts included. Parents gifting a rental house bought for £150,000 and now worth £450,000 are crystallising a £300,000 gain and roughly a £70,000 tax bill, with no sale proceeds to pay it from.
The exceptions are narrow and specific. Your own home is usually covered by private residence relief, so gifting the family home rarely triggers CGT (it triggers other problems — see below). Gift holdover relief can defer the gain, but only for business assets and unlisted trading-company shares (listed shares only where it is your personal company) under s165, or for transfers that are chargeable to IHT, such as gifts into most trusts (s260). A plain gift of an investment property directly to a child qualifies for neither — which is precisely why gifts of rental property so often route via a trust, where the s260 deferral can be claimed. One hard condition on that route: the trust must not be settlor-interested — if you, your spouse or your minor children can benefit, holdover is denied (and clawed back if the trust becomes settlor-interested within six years). One documented trap on that route: where s260 holdover is claimed, the trust or beneficiary loses the ability to claim private residence relief on a later sale of that property, so parking a future home in a trust this way can backfire.
Inheritance tax: the seven-year clock — and the trap in the family home
An outright gift to a child is a potentially exempt transfer: survive seven years and it leaves your estate entirely. Die within seven, and it comes back into account against the £325,000 nil rate band — frozen now until April 2031 — with taper relief reducing the tax (not the value) on gifts above the band from year three onwards.
Then there is the rule that sinks the most popular plan of all. Give your home to the children and carry on living in it, and you have made a gift with reservation of benefit: for IHT purposes the house never left your estate, however long ago the deed was signed. The clean escapes are narrow: paying full market rent — genuinely, at a reviewed commercial rate, with the children declaring the rental income — or, where a child moves in and you gift a share while genuinely sharing the home and the running costs, the specific shared-occupation carve-out. Beyond those, arrangements engineered around the GROB rules tend to walk into the pre-owned assets income tax charge instead. There is no cheap general fix, and anyone selling you one is selling you an HMRC enquiry.
Worth remembering before gifting the home at all: the residence nil rate band gives each parent up to £175,000 of extra IHT allowance when a home passes to direct descendants on death — up to £1 million of combined allowances for a couple. Estates under that level may be manufacturing CGT and legal risk to solve an IHT problem they do not have.
SDLT, and the mortgage that changes the answer
A pure gift carries no stamp duty land tax — no consideration, no charge. But if the property has a mortgage and the children take it over, the debt assumed is chargeable consideration: gift a house with £300,000 outstanding and the children have an SDLT bill, potentially at the additional-dwelling rates if they own homes of their own. Lender consent is needed too, and lenders say no more often than yes. Clearing or restructuring the borrowing before the gift is usually the difference between a clean transfer and a mess.
The non-tax risks that outweigh the tax
Once gifted, the property belongs to your child — fully, immediately, and through whatever happens to them. Their divorce can put it in the matrimonial pot; their insolvency can hand it to creditors; their death can route it somewhere you never intended. And deliberate deprivation rules mean gifting the home rarely works as care-fee planning: there is no seven-year safe harbour, and a council can challenge an old gift where avoiding fees was a significant motive and the donor could reasonably have expected to need care and contribute to its cost at the time — which is precisely the situation in which such gifts tend to be made.
This is why the practical answer is often a trust rather than an outright gift: a discretionary or life-interest trust keeps control with trustees, can offer real (though never absolute — the deed and beneficiaries' rights decide) protection against beneficiaries' misfortunes, and — via s260 — can defer the CGT that an outright gift of investment property triggers. Trusts carry their own tax regime (entry, ten-year and exit charges above the nil rate band), so this is a costed comparison, not a free upgrade; our guide to estate planning trusts covers that side.
Doing it properly
A property gift done well is unremarkable: the CGT position computed and funded (or held over) before signing, the IHT consequence modelled with the seven-year clock and RNRB in view, the mortgage dealt with, market-rent arrangements documented where parents stay in occupation, and the 60-day CGT return filed on time. Done badly, it is the single most expensive DIY transaction in family finance.
If a property transfer is on your family's agenda, our CGT planning, inheritance tax and property tax teams look at all three regimes together — which is the only way this particular question has ever had a safe answer.