Taxation Treatment for Gifted Properties

If you are considering gifting a property it is important to understand exactly what the taxation implications of this decision would be. The relevant taxes to consider would be Stamp Duty, Capital Gains Tax, Inheritance Tax and Income Tax.

Table of contents

Taxation Treatment for Gifted Properties

If you are considering gifting a property it is important to understand exactly what the taxation implications of this decision would be. The relevant taxes to consider would be Stamp Duty, Capital Gains Tax, Inheritance Tax and Income Tax.

Taxation treatment for gifted properties

Stamp Duty

The first question to ask here is whether there is a mortgage on the gifted property. If the answer to this is “yes” then stamp duty will be payable on the outstanding mortgage value. In addition if the recipient of the gift already owns a property, the additional stamp duty on second properties rates will apply which are 3% above the standard rates. If there is no mortgage on the property, then no stamp duty will be payable. It is also important to inform the mortgage provider of this type of transaction.

Capital Gains Tax

Capital Gains Tax if payable on properties which are disposed of which have not been a person’s main residence for the full time that the property was owned by that person. If the property was a main residence for part of the time it was owned then CGT will only be payable for the proportion of time it wasn’t being used as the main residence.Gifted properties incur CGT on gains above the capital gains tax allowance (currently £11,100) of 18% for basic rate tax payers and 28% for higher rate tax payers. This tax can be paid in 10 equal annual instalments however interest of 3% per annum would be payable in addition to the tax charge.If the property has been sold to a “connected person” (e.g. child, parent or grandparent) at below market value (including zero value for gifted properties), the tax is calculated based on the market value not the actual value.

Inheritance Tax

Inheritance Tax is payable at a rate of 40% on the value of a person’s estate over the IHT allowance which is currently £325,000. Over the next 4 years the family home allowance will also be phased in and will increase the IHT allowance by an additional £175,000 by 2020-21 for estates where a property that was the main or “family home” is being passed to children, foster children, stepchildren or grandchildren.Gifted properties are classified as “potentially exempt transfers” for Inheritance Tax purposes.  This means that if the gift was made between 3 and 7 years before the death of the donor, the tax charge reduces by 8% for each additional year from the initial rate of 40%. After 7 years there is no Inheritance Tax payable on the gift.

Income Tax

Income tax is payable on rental income.

If a property has been gifted to a person who is less than 18 years of age, the tax charge will be levied on the donor regardless of who receives the rental income.  If however the person receiving the gift is an adult then they will be liable for income tax on any rental income arisingThe above information demonstrates the complexities involved in understanding gifted property tax treatment and it is recommended that you seek the advice of a professionally qualified adviser before entering into any transactions of this type.

Join our Newsletter

Subscribe and get the latest updates about inheritance tax and Estate Planning into your mailbox.

We help people with over £1 million in current assets pay ZERO in UK inheritance tax

One stop comprehensive specialist advice - Tax, financial planning and legal advice service with 18 years experience.

What our clients say
Read our 105
    
reviews

"It is gratifying to finally come across an adviser who gives sensible ongoing advice which is very client focused."

Frank Hibberd

Retired gentleman

"It is nice to know that we can now be certain that our daughter will inherit our money without giving a large slice of it to the government ."

Tony & Sue Perriss

"Everyone's situation is different but having an initial discussion with Charles has really helped me personally navigate what can be a daunting subject."

Bobby Chadda

"I particularly want to thank you for the open and transparent manner in which you have serviced my tax planning needs since I first met you seven or so years ago. In arranging my tax planning through you, I have confidence"

Michael Mahon

Retired gentleman

"Charles was really helpful from the outset and quickly clarified our situation for us... I have used Bluebond for  IHT and other tax advice and they have been very helpful with both. Charles is a very experienced and knowledgeable individual and I highly recommend Bluebond's services."

Sam Attenborough

Retired gentleman

I have used Bluebond for setting up a discretionary trust for my children as well as inheritance tax and estate planning for my home and  other properties. Having searched for years, it was only after meeting and speaking with Charles that I felt confident enough to take these next steps, and I'm very glad I did. His ability to explain complex issues in simple terms and walk you through every step of the process is quite simply unparalleled.

Imran Qureshi

Excellent and comprehensive advice concerning all things financial in one place. Enthusiastic, Educational, Expert, value oriented, Professional and Polite are adjectives that come to mind as well as great attention to detail.

Deirdre Buckley

Inheritance tax is a minefield. Charles de Lastic of Bluebond Tax Planning is the best in the business at helping you to chart the path that is right for you to ensure your estate is structured in the most tax efficient manner.

Nicholas Dickinson

Charles provides clients with valuable insights that clearly demonstrate expertise built over the years. Charles and his team guided us through a estate planning journey and then addressing complex Inheritance Tax matters. They have been very transparent with their advice and cost. Overall an excellent service. Highly recommended

Shailesh Karia

The information contained in this web site is for UK consumers only.  Like most firms of solicitors and accountants, Bluebond Tax Planning is not regulated by the FCA. The content of this website does not constitute FCA regulated financial advice and all content is provided for general information purposes only. Bluebond is not responsible for any action you may take as a result of information on this site. All advice will be delivered on a personal basis once we fully understand your situation and our client agreements have been signed.

Copyright © 2024 Bluebond.co.uk
-
Copyright Notice
-
Legal Disclaimer
-
Terms & Conditions
-
Privacy Policy