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Helping your kids or grandkids buy their first home is a generous and powerful financial choice. Whether you help with a deposit, provide a rental property, or give them the family home, gifting property can give your loved ones a strong start or an extra source of income. However, transferring the property isn’t just about signing the documents. You must consider taxes, legal issues, and long-term plans. Making mistakes in this process can be expensive.
Can a Child Legally Own Property?
Children under 18 (or 16 in Scotland) cannot legally own property in their own name. Instead, the property must be held in trust until they reach adulthood.
There are two main options:
- Bare Trust: The child becomes the legal owner at 18, with full control.
- Formal Trust: Offers more control for the donor and allows for the management of the asset until later in life.
If you’re considering gifting to a minor, setting up the right trust structure is essential.
Capital Gains Tax (CGT): When Gifts Aren’t Free
Gifting property triggers CGT if the property has risen in value since you bought it. The tax is calculated on the gain, using the property’s market value at the time of the gift—even if no money changes hands.
You can deduct allowable costs, such as legal fees or major renovations. There is an annual CGT exemption (£3,000 for 2025), and the remaining gain is taxed at 18% or 24% depending on your income level.
If the property was your main residence, Private Residence Relief may reduce or eliminate the tax. Gifting immediately after purchase may avoid CGT if there has been no increase in value.
Remember, CGT must be reported and paid within 60 days of the date of the gift.
Inheritance Tax (IHT): The Seven-Year Rule Explained
Gifting property can reduce your estate and lower future inheritance tax—but timing is key. If you survive seven years after making the gift, it falls outside your estate. If you die within that window, it may still be subject to taxation.
Here’s how it works:
- 0–3 years: Full 40% IHT if over the nil-rate band.
- 3–7 years: Taper relief may reduce the tax.
- After 7 years: The gift is fully exempt.
Be cautious about “gifts with reservation.” If you continue living in the property rent-free, it’s still considered part of your estate unless you pay full market rent to your children.
Gifts into trusts may also trigger an immediate 20% IHT charge if the value exceeds the available nil-rate band.
Income Tax: Sharing the Wealth (and the Tax)
Gifting a rental property can be a smart way to use your children’s lower income tax bands. If the recipient is over 18, they are taxed on the rental income—not you.
However, if the child is under 18 and you gift the property, any income exceeding £100 per year is still taxed in your name.
Also consider how gifting the income affects your tax position. It could impact pension allowances, personal tax rates, or even mortgage eligibility.
Stamp Duty Land Tax (SDLT): When Gifts Cost
In most cases, gifts of property do not attract SDLT—unless there’s an outstanding mortgage.
If you transfer a property with a mortgage to your child, SDLT is calculated based on the value of the mortgage, not the property itself. For 2025, SDLT applies at £125,000 for residential properties, with rates increasing based on the property’s value.
This means gifting a mortgaged property could trigger an unexpected tax bill for your child—even if they didn’t pay a penny.
Legal and Financial Risks to Think About
Once you’ve gifted property to an adult child, it’s theirs. That means if they go through a divorce or bankruptcy, the property could be at risk.
Additionally, giving away assets to avoid care fees is not always effective. If local authorities believe you gave the property away to avoid paying for care, they can include its value in financial assessments.
Smarter Alternatives to Gifting Property
Gifting an entire property isn’t always the best solution. Consider these options:
- Gift the rental income instead. This lets you retain control of the property while sharing the financial benefits.
- Gift a portion of the property. A part-share allows your child to earn a proportional rental income and gradually build their stake.
- Loan instead of a gift. A family loan agreement can keep flexibility and protect the asset legally.
Each alternative has its own tax and legal implications, but they often provide more control and reduced exposure to risk.
Plan Generously—But Plan Wisely
Gifting property is an incredible gesture, but one that requires careful planning. Between CGT, IHT, SDLT, income tax, and legal consequences, the true cost of a gift can be surprising. But with proper planning and advice, you can make the most of your generosity—giving your children or grandchildren a meaningful head start without unnecessary tax burdens.