CGT on gifting buy-to-let property
- TCGA 1992 s18: gifts to connected persons (including adult children) are treated as disposals at full open market value — regardless of actual consideration
- Residential CGT rates: 18% (basic rate) and 24% (higher/additional rate) from April 2024. Annual exempt amount is £3,000 for 2024/25 and 2025/26
- CGT must be reported and paid within 60 days of completion via HMRC's UK Property Reporting Service
- Example: property bought for £150,000, market value at gift £350,000 — gain £200,000. After £3,000 exempt amount, CGT at 24% = £47,280
IHT and the 7-year rule
- A gift of property to an individual is a Potentially Exempt Transfer (PET): fully exempt from IHT if the donor survives 7 years from the date of gift
- Death within 3 years: IHT at 40% applies (subject to nil rate band). Death 3–7 years: taper relief reduces rate from 32% to 8%
- Taper relief reduces the rate, not the amount of the transfer — a common misunderstanding
- Gift with reservation (FA 1986 s102): if the donor continues to benefit from the property after gifting (e.g. retains the rent), the gift is ineffective for IHT regardless of the 7-year rule
Holdover relief and estate planning strategies
- Business asset holdover relief (TCGA 1992 s165) does NOT apply to buy-to-let residential property — letting is investment, not a trade
- Holdover relief on gifts into discretionary trusts (s260) can defer CGT but introduces 10-year anniversary IHT charges and complexity
- Shares in an unquoted company: if the portfolio is held in a limited company and shares are gifted, s165 holdover relief CAN apply to the shares — potentially deferring CGT on the share gift
- Annual gift exemption (£3,000) and normal expenditure out of income exemption are useful for redistributing rental income once a child owns the property — too small to make property gifts tax-free on their own