Why a gift is taxed like a sale
Capital Gains Tax is charged on disposals, not on sales, and a gift is a disposal. Because there is no bargain at arm's length, the legislation substitutes market value for whatever passed: HMRC's Capital Gains Manual confirms that a gift, or any disposal to a connected person such as a child, parent, sibling or grandchild, is priced at what the asset would fetch on the open market, so gifting a flat for nothing and selling it to your daughter at a discount produce exactly the same CGT bill. Gift a flat you bought for £250,000 when it is worth £400,000 and you have a £150,000 gain: after the £3,000 annual exempt amount, a higher rate taxpayer owes £35,280 at 24%, funded from your own pocket because the gift raised no cash. The recipient takes a £400,000 base cost, so the same growth is not taxed twice. If the property has always been your own main home, private residence relief usually takes the CGT to nil; every other rule, relief and trap is worked through in our guide to CGT on gifts and family transfers.
The reliefs, and the common gift that gets neither
Transfers between spouses and civil partners who live together are the one free move: no gain, no loss, with your original base cost travelling to your spouse for their own eventual sale. Beyond the marriage, holdover relief can defer the gain in two situations: gifts of business assets under s165, and transfers that are chargeable for Inheritance Tax, in practice most transfers into trust, under s260. The most common family gift of all, a buy-to-let handed directly to an adult child, qualifies for neither, because a rental property is an investment rather than a business asset and a direct gift to an individual is a potentially exempt transfer rather than a chargeable one. Routing the property through a trust to capture s260 can work but brings trustee compliance, possible IHT entry charges and a restriction that kills the relief if you, your spouse or your minor children can benefit, as our guide to trusts and Inheritance Tax explains. Where the gain cannot be held over, an election under s281, made in writing before the tax falls due, spreads the CGT on gifted land or unquoted shares over ten yearly instalments with interest, and the balance falls due if the recipient sells. One cross-border caution: holdover generally needs a UK resident recipient, and if they emigrate within six years of the end of the tax year of the gift the held-over gain is clawed back.
The 60 day report and the seven year clock
A gift of UK residential property is caught by the same reporting regime as a sale: where CGT is due, the UK Property Return must be filed and the tax paid within 60 days of completion, and the clock does not wait for a professional valuation, so commission one before the deed is signed. Non-residents must file the 60 day return for every disposal of UK property, gifts included, even where no tax is due, a rule covered in our 60 day reporting guide. The other tax runs on a longer clock: a gift to an individual is a potentially exempt transfer, free of Inheritance Tax if you survive it by seven years under the 7 year rule, but give away your home and carry on living in it rent free and the house stays in your estate at its death-date value while the CGT disposal still happened, the worst of both taxes. Horizon advises on family transfers as a fixed fee written plan, with the CGT computation, the reliefs and the IHT consequences decided together and complex gift planning from £750; book a free 30 minute clarity call before the deed is signed.