The Implications of Gifting Property in the UK 

Thinking about gifting a property to a relative, or maybe you’re a fortunate recipient of a property?  

The laws and taxes in the UK can make this process a confusing subject. So, whether you’re giving or receiving property, we’ll help you understand these rules to avoid any surprises later on. 

Caversham Solicitors, trusted legal advisors based in Reading, can guide you through this process. With our knowledge and experience, we’ll make the legal and tax parts of property gifting easier to understand, so you can make the best-informed decisions.  

Let’s take a closer look at what’s involved in property gifting in the UK. 

The Legal Side of Gifting Property 

A Deed of Gift is a legal document; it’s a declaration of the donor’s intention to gift the property and establishes the transfer legality.  

Having a solicitor prepare and witness the Deed of Gift is highly advisable. Solicitors bring their expertise to ensure the document is correctly drafted, all legal procedures are followed, and potential risks are mitigated. 

The new ownership must then be registered accurately with Land Registry to reflect the property’s new custodian.  

If the donor wishes to continue living in the gifted property, this is known as ‘reservation of benefit.’ This legal rule means that the property will still be considered part of their estate upon death, despite land registry filings. 

Tax Implications 

Understanding the various taxes involved, such as Capital Gains Tax, Inheritance Tax, and Stamp Duty Land Tax, will allow for a smoother transition of property ownership. 

Capital Gains Tax 

CGT is a tax on the profit when you sell (or “dispose of”) something (an “a house”) that’s increased in value. Note that gifting property is considered a disposal, and hence CGT could be applicable. 

It’s based on the gain in profit made, based on its increase in value over time. So, for this reason, it is recommended to hire a professional to value the property at the start of this process. 

Inheritance Tax 

Inheritance Tax is levied on an individual’s estate at a rate of 40% on values exceeding £325,000. This threshold increases to £500,000 where a main residential property is bequeathed to a direct descendant, and the total estate value is less than £2 million. 

The seven-year rule: If the donor survives for seven years post-gifting, the property may escape being counted as part of the estate for IHT purposes. However, if the donor passes away within seven years, the property may be subject to an IHT charge.  

The exact amount of inheritance tax due is based on the number of years between git and death.  

  • The rate of IHT on gifts below 3 years is 40% 
  • The rate of IHT for 3 to 4 years is 32% 
  • The rate of IHT for 4 to 5 years is 24% 
  • The rate of IHT for 5 to 6 years is 16% 
  • The rate of IHT for 6 to 7 years is 8% 
  • Over 7 years there is rate is 0% 

A professional valuation at the time of gifting is advisable, laying a foundational basis for any future IHT calculations. 

Stamp Duty Land Tax 

Stamp duty may not apply if there is no outstanding mortgage. There are some specific circumstances involving mortgage transfers, that may necessitate a SDLT payment. 

If you wish to discuss giving or receiving property as a gift with one of our solicitors, please get in touch today.