Gifts and Capital Gains Tax: Complete Guide (with a Focus on Property Gifts)
Plain-English explanation of CGT on a disposal even when gifting – i.e. tax on gains when you give away assets.
Introduction: Why Capital Gains Tax Applies to Gifts
Many people assume that gifting an asset means there is no tax involved — after all, no money changes hands. Unfortunately, for tax purposes this is often not the case. In the UK, when you give away an asset such as a property, shares, or even artwork, you may still face Capital Gains Tax (CGT) because HMRC treats most gifts as if they were sold at full market value.
This can create unexpected tax bills, especially for families looking to transfer wealth between generations by gifting second homes, buy-to-let properties, or other valuable assets. Understanding the rules around gifts and Capital Gains Tax is therefore essential for anyone considering making such transfers.
This guide explains everything you need to know, with a particular focus on property gifts, because they are both the most common and the most complex when it comes to CGT. We’ll cover the rules, exemptions, calculations, reporting obligations, and practical planning strategies to help you avoid unnecessary surprises.
What Counts as a Disposal for CGT Purposes?
Capital Gains Tax arises when you dispose of an asset. Disposal doesn’t just mean selling it for cash. For tax purposes, disposal includes:
Selling an asset for money
Swapping it for something else
Giving it away as a gift
Selling it for less than it’s worth (for example, transferring a property to your child for £1)
The key principle is that HMRC wants to tax the gain you’ve made on the asset compared to what you originally paid. Even if no money changes hands, the gain is calculated as if you had sold the asset for its current open market value.
So, if you gift a buy-to-let property worth £300,000 today that you bought for £150,000 years ago, HMRC will treat you as if you sold it for £300,000. The resulting £150,000 gain may be subject to Capital Gains Tax.
| Recipient | CGT at transfer? | Tax basis | Reporting / payment | IHT effect | Notes |
|---|---|---|---|---|---|
| Spouse / Civil partner | No (no gain / no loss) | Recipient inherits donor's base cost | Usually none at transfer | Usually outside IHT rules between spouses | Applies only while married/partnered and living together. |
| Connected persons (children, relatives) | Yes — market value treated as proceeds | Market value at date of gift | Residential property: report & pay within 60 days if CGT due | Gift may be a Potentially Exempt Transfer for IHT | Valuation evidence advised; HMRC will not accept nominal consideration. |
| Non-connected person (friend) | Yes — treated at market value | Market value at date of gift | Report via Self Assessment / 60-day rule for residential property | Gift to individual usually a PET for IHT | Charity exceptions exist (charity gifts often exempt from CGT). |
| Registered charity | Usually exempt from CGT | N/A for most charitable gifts | No CGT return typically required for the donor | May reduce donor's estate for IHT | Confirm charity status and any special rules with adviser. |
| Gifts into Trusts | Depends — hold-over relief may defer CGT | If hold-over claimed, donee/trust takes donor's base cost | Complex reporting; specialist advice advised | Trust charge / immediate IHT considerations possible | Trusts trigger separate CGT/IHT rules — get professional help. |
Quick guide: market value is the normal starting point for gifts to non-spouses; residential property has strict 60-day reporting rules when CGT is due.
Gifts Between Spouses or Civil Partners
The main exception to the rule is when you gift an asset to your spouse or civil partner. In most cases, such transfers are made on a no gain / no loss basis.
This means:
You don’t pay CGT at the time of the gift.
Your spouse effectively inherits your original purchase price as their “base cost”.
CGT will only be due when they later dispose of the asset outside the marriage or civil partnership.
For example, if you bought a property for £200,000 and later transfer it to your spouse when it is worth £350,000, there is no immediate CGT. If your spouse later sells it for £400,000, their gain will be calculated from your original purchase price of £200,000.
This rule only applies if you are living together during the tax year of the transfer. If you are separated or divorced, the exemption may not apply, and special rules govern the timing of transfers.
Gifts to Family Members and Connected Persons
When you gift property to a child, parent, sibling, or other relative (other than your spouse or civil partner), HMRC applies the market value rule. This means the disposal is treated as if you sold the asset for what it is truly worth, regardless of whether you charged nothing or a nominal sum.
For example:
You bought a flat for £120,000 ten years ago.
You gift it to your daughter today when it is worth £280,000.
Even though no money changes hands, HMRC treats you as if you sold it for £280,000.
Your taxable gain is £160,000 (less allowances and reliefs).
This rule prevents people from artificially lowering the sale price to reduce CGT. It applies to most transfers between “connected persons”, which includes close family members and certain business relationships.
Gifts to Friends or Non-Connected Persons
If you gift property to a friend or someone who isn’t classed as a “connected person”, the same market value rule applies. The disposal is treated at open market value on the date of the gift.
The only major exception is when you gift to a registered charity, in which case the transfer is normally exempt from Capital Gains Tax.
How to Calculate CGT on a Gifted Property
Calculating Capital Gains Tax on gifts follows the same principles as a sale. The main difference is that instead of sale proceeds, you use market value.
Step 1: Establish your base cost
This is usually the price you originally paid for the property, plus any associated costs such as:
Stamp duty
Legal fees
Estate agent fees on purchase
Step 2: Add improvement costs
Any significant capital improvements can be added to the base cost. For example, building an extension or adding a loft conversion counts, but redecorating or repairs do not.
Step 3: Determine market value
You will need a reliable market valuation at the date of the gift. For property, it is often wise to obtain a professional valuation to avoid disputes with HMRC later.
Step 4: Calculate the gain
Market value (at date of gift) – base cost – improvement costs – selling costs (if any) = Gain.
Step 5: Apply allowances and reliefs
Annual exempt amount (£3,000 for individuals in 2025/26).
Any unused capital losses from current or previous years.
Step 6: Apply the correct tax rate
For residential property gains: 18% (basic rate) or 24% (higher/additional rate).
For other assets: 10% or 20% depending on your income level.
Example: Gifting a buy-to-let
Purchased for £150,000 + £2,000 fees = £152,000 base cost.
£20,000 extension added.
Total cost = £172,000.
Market value at gift date = £300,000.
Gain = £128,000.
After annual exemption (£3,000), taxable gain = £125,000.
If you’re a higher-rate taxpayer, tax at 24% = £30,000 CGT bill.
Reliefs and Exemptions for Gifts
There are several important reliefs that can reduce or eliminate CGT when gifting property:
Private Residence Relief (PRR)
If the property was your main home for the entire period of ownership, the gain may be exempt.
Partial relief may apply if you lived there for part of the time.
Business Asset Disposal Relief (BADR)
If the property is a qualifying business asset (such as premises used in your trade), you may qualify for a reduced 10% CGT rate on up to £1 million of lifetime gains.
Gift Hold-Over Relief
Available when gifting certain business assets or where the gift is immediately chargeable to Inheritance Tax (e.g. gifts into most types of trust).
This relief allows you to “hold over” the gain, meaning no CGT is payable at the time of the gift. Instead, the recipient inherits your base cost and pays CGT when they eventually sell.
Spouse Exemption
As explained above, transfers to your spouse or civil partner are CGT-free at the time of the gift.
Interaction with Inheritance Tax (IHT)
Gifting property can also have Inheritance Tax implications.
A gift to an individual is usually treated as a Potentially Exempt Transfer (PET).
If you survive for seven years after making the gift, the transfer falls out of your estate and no IHT is due.
If you die within seven years, the gift may be taxable, though taper relief can reduce the tax if more than three years have passed.
This creates a common dilemma: gifting may trigger CGT now but save IHT later. Balancing both taxes requires careful planning, especially for high-value property gifts.
Reporting and Paying CGT on Property Gifts
If you gift a UK residential property and there is CGT to pay, you must report it to HMRC using the Capital Gains Tax on UK Property Service.
The return must be filed within 60 days of the gift.
The CGT must also be paid within the same 60-day deadline.
Penalties and interest apply if you miss the deadline.
For other assets, CGT is reported via your annual Self Assessment tax return, due by 31 January following the end of the tax year.
Record-Keeping for Gifts
Good records are vital if you are making gifts:
Evidence of your original purchase price.
Details of any improvements.
Professional valuations at the time of the gift.
Copies of any relief claims (e.g. Gift Hold-Over Relief).
You should keep these documents for at least 10 years in case HMRC raises queries.
Practical Planning Tips and Pitfalls
Always consider professional valuation – HMRC may challenge artificially low valuations.
Use your annual exemption wisely – spreading gifts over multiple tax years can save tax.
Think about income tax status – CGT rates depend on your income tax band. Timing a gift in a year with lower income may reduce the rate.
Coordinate CGT with IHT planning – sometimes it makes sense to accept a CGT bill today to reduce IHT later.
Don’t forget reporting deadlines – especially the 60-day rule for residential property gifts.
Worked Case Studies
Case Study 1: Gifting a Buy-to-Let to a Child
Mr Jones bought a rental flat for £100,000 in 2005. In 2025 it is worth £350,000. He gifts it to his son.
Gain = £250,000.
Less annual exemption = £247,000 taxable.
Tax at 24% = £59,280.
Even though no money changes hands, Mr Jones must pay nearly £60,000 in CGT.
Case Study 2: Gifting Your Main Home
Mrs Smith gifts her home, which she has lived in since buying it, to her daughter. The property is worth £400,000. Because it has always been her main residence, Private Residence Relief fully exempts the gain, so there is no CGT.
Case Study 3: Using Hold-Over Relief
Mr Patel owns a shop used in his business, worth £500,000. He gifts it into a trust for his grandchildren. Normally this would trigger CGT on the gain. However, he claims Gift Hold-Over Relief, so the tax is deferred. The trust inherits his base cost, and CGT will be payable only when the trustees eventually sell.
FAQs: Gifts and Capital Gains Tax
Do I pay CGT if I give my house to my child?
Yes, unless it is your main residence (covered by Private Residence Relief). CGT is calculated on the market value at the time of the gift.
Can I gift a property to my spouse without tax?
Yes. Transfers to spouses and civil partners are generally exempt from CGT, provided you are living together.
Do I need to report a gift if there is no gain?
If the gain is covered entirely by reliefs (such as Private Residence Relief), and no CGT is due, you usually don’t need to report. But keep records in case HMRC asks questions.
What if I sell my property to my child for £1?
HMRC will treat it as if you sold at full market value, not £1, so CGT is calculated on the true value.
How soon do I have to pay CGT on a gifted property?
Within 60 days of the gift for UK residential property.
Summary and Key Takeaways
Gifts are disposals for CGT, normally calculated using market value.
Transfers to spouses or civil partners are exempt at the time of gift.
Property gifts to children or relatives often create large CGT bills.
Reliefs such as Private Residence Relief, Gift Hold-Over Relief, and Business Asset Disposal Relief may reduce or defer tax.
Reporting deadlines are strict — 60 days for residential property gifts.
Gifts can also have Inheritance Tax consequences.
Professional advice and valuation are highly recommended before making significant gifts.
We Can Help With Your Gift Transfer
Thinking about gifting a property or other assets? The rules are complex, and mistakes can be costly. A professional tax adviser can help you plan the timing, structure, and reporting of your gifts to minimise both CGT and Inheritance Tax.
If you are considering transferring property to family members or into a trust, speak to a qualified accountant or tax specialist before making the move.