When considering the implications of gifting property in the UK, it's vital to be aware of the various taxes that may be applicable. This includes understanding updates and changes that might have occurred since the original guidance was written. Here's an updated overview reflecting the tax considerations as of 12 March 2024, with a focus on Deed of Gift, mortgages on gifted property, Stamp Duty, Inheritance Tax, and Capital Gains Tax.
Deed of Gift
Creating a Deed of Gift allows you to transfer ownership of your property to another person without any payment being exchanged. This process exempts the recipient from paying Stamp Duty, Capital Gains Tax, or Income Tax on the property's value. In Scotland, such transactions are subject to Land and Buildings Transaction Tax (LBTT) under the principle of 'no chargeable consideration'.
Gifting Property with a Mortgage
Gifting a property that still has a mortgage requires the new owner to meet the lender's eligibility criteria. Restrictions might apply, particularly if the property is a buy-to-let or if the donor intends to continue living in the property. In some cases, the mortgage must be fully paid before the transfer can proceed.
Gifting Property Before Death
If you gift a property and survive for more than seven years afterward, the recipient is generally not liable for Inheritance Tax due to the gift being considered a Potentially Exempt Transfer (PET). However, if you wish to continue living in the gifted property, you must pay market-rate rent and share the bills to avoid the Inheritance Tax implication.
Stamp Duty on Gifted Property
Stamp Duty Land Tax (SDLT) is not applicable if you receive a property or land as a gift with no outstanding mortgage. If the property has an existing mortgage, SDLT may be due if the mortgage value exceeds the SDLT threshold, which varies across different parts of the UK.
Stamp Duty and Inheritance Tax on Property
Inherited property is not subject to Stamp Duty or Income Tax. The Inheritance Tax threshold for estates under £325,000 is nil, but the threshold increases to £500,000 if the property is left to a direct descendant, such as a child or grandchild. Special rules apply for nominating a main home if inheriting a second property.
Agricultural land or property gifted either before or after death may be exempt from Inheritance Tax, subject to certain conditions being met.
Inheritance Tax Liability
If the donor dies within seven years of gifting property, the recipient may be liable for Inheritance Tax on values over £325,000, or £500,000 for direct descendants. The standard Inheritance Tax rate is 40%, with a tapering relief applying based on the number of years between the gift and the donor's death.
Capital Gains Tax on Gifted Property
Capital Gains Tax may apply if the gifted property is sold by the recipient. No Capital Gains Tax is due if the property is gifted to a spouse or civil partner, except in cases of separation. The selling spouse or civil partner may be liable for Capital Gains Tax on the profit made from the sale, calculated from the property's original ownership date.
For the most accurate and up-to-date information regarding tax implications of gifting property, consulting a professional tax advisor is recommended, as tax regulations and thresholds are subject to change.