Gifting a property to a child is entirely legal in the UK and a relatively common way for parents to help the next generation with housing costs or to pass on assets before death. However, the tax implications can be substantial and the consequences of doing it incorrectly can be expensive. Understanding the capital gains tax, inheritance tax, and stamp duty land tax positions before proceeding is essential.

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Is It Legal to Gift a House to a Child?

Yes. There is no legal restriction on transferring property to a family member as a gift. The process is handled through a conveyancing transaction, where the title is transferred at HM Land Registry from the parent to the child. No money needs to change hands, though the transfer must still be registered and legal advice obtained by both parties.

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Capital Gains Tax

When you give a property to your child, you are treated for capital gains tax purposes as having disposed of it at its market value at the time of the gift, even though you received no money. This means if the property has increased in value since you acquired it, you may have a capital gains taxable gain to declare and pay tax on.

Main residence relief

If the property you are gifting is your only or main residence and has always been your principal private residence throughout your ownership, full principal private residence relief applies and no capital gains tax is due. You can gift your home to your child tax-free from a CGT perspective provided it has always been your main home.

Second properties and investment properties

If the property is not your main residence, for example a buy-to-let, a holiday home, or a second property, the full gain calculated on the market value at the time of the gift is subject to capital gains tax. The annual exempt amount, which in the 2024/25 tax year is 3,000 pounds, can be deducted. The remaining gain is taxed at 18 percent for basic rate taxpayers or 24 percent for higher rate taxpayers on residential property gains. For large gains, the tax liability can be significant.

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Inheritance Tax

A gift of property is a potentially exempt transfer for inheritance tax purposes. This means the gift is free of inheritance tax if the donor lives for seven years after making it. If the donor dies within seven years, the value of the gift may be included in the taxable estate, and inheritance tax at up to 40 percent may be due on the excess above the nil rate band.

Taper relief

If death occurs between three and seven years after the gift, taper relief reduces the rate of inheritance tax charged. Between three and four years, 80 percent of the full rate applies. Between four and five years, 60 percent applies. Between five and six years, 40 percent applies. Between six and seven years, 20 percent applies.

Gift with reservation of benefit

If you give your home to your child but continue to live in it without paying full market rent, the gift is treated as a gift with reservation of benefit for inheritance tax purposes. The property remains in your taxable estate as if you had never given it away, for as long as you continue to live there without paying market rent. This rule prevents people from giving away their home while continuing to use it and expecting to reduce their inheritance tax liability.

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Stamp Duty Land Tax

When property is transferred as a gift with no consideration, stamp duty land tax is generally not chargeable because there is no chargeable consideration. However, if the property has a mortgage and the child is taking over responsibility for the mortgage, the outstanding mortgage balance is treated as consideration for stamp duty purposes. If the child already owns a property, the three percent additional dwelling surcharge may apply on this chargeable consideration.

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The Child's Position

When the child receives the gifted property and subsequently sells it, their capital gains tax is calculated from the market value of the property at the time they received the gift. This means the gain that was taxed on the parent when the gift was made does not get taxed again when the child sells, as the child's base cost is the market value at the point of receipt.

The child also needs to consider stamp duty if there is a chargeable consideration, whether the property will be their main residence or an investment property, and the inheritance tax implications if the parent dies within seven years of the gift.

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Alternatives to an Outright Gift

An outright gift is not the only way to transfer property to a child. Placing the property into a trust, selling it at a below-market price, or adding the child to the title as a joint owner are all alternatives that have different tax profiles and practical implications. The right approach depends on the specific objectives, the value of the property, the parent's wider estate, and both parties' tax positions.

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Summary

Gifting a house to a child is legally straightforward but has significant tax implications. Capital gains tax may be due on the gift if the property is not the parent's main residence. Inheritance tax exposure persists for seven years after the gift under potentially exempt transfer rules. If the parent continues to live in the gifted property without paying market rent, the property remains in the estate indefinitely under gift with reservation rules. Stamp duty may apply if there is a mortgage being taken over.

Both a solicitor and a tax adviser should be involved before any property gift proceeds, particularly for higher-value properties or where the parent may wish to remain in the property after the transfer.