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Gifting property - Tax implications

Gifting property - Tax implications

Gifting property is one way clients may wish to consider when looking at reducing the value of their estate for inheritance tax purposes.

There are tax implications to consider and the rules vary according to each individual set of circumstances.  If a property is given away or sold at less than market value taxes will be payable provided the person receiving the property is a “connected person” (i.e. family members, family trusts).  The only way this does not apply is if the sale is at “arm’s length” between two unconnected people.

Giving a property away is a disposal for Capital Gains Tax (CGT) purposes.  It applies when you sell a property that has not been your main residence for the whole time you have owned it.  CGT is paid on the increase in value from the date it was bought, less expenses.  There is an annual allowance of which is currently £12,300.  Any gain above this is taxed at the relevant rate, which differs for basic tax-rate payers and higher tax-rate payers. In the majority of cases CGT is not payable on gifts to a spouse, civil partner or charity, although there are some exceptions to this rule.

In circumstances where there is a mortgage attached to the property LBTT may be payable by the receiver of the gift.  The person making the gift should also speak with the mortgage provider about the terms of the mortgage and whether you can give the property away.  The lender may wish to ensure the person you are gifting the property to can afford to take on the mortgage repayments.

Should you make the gift and die within 7 years of the gift it may fall back into your estate for Inheritance tax purposes.  After 3 years the tax amount falls by 8% each year from the full rate of 40% if less than 3 years since gifting to 0% if 7 or more years.

Should you require any further information or advice on gifting of property or related issues please do not hesitate to contact a member of our Private Client Team.

Written by : Lynne Lind