How to Gift a Property

Newsletter issue - September 08.

Let's say you are feeling generous, and want to share your wealth with your children. A gift on the occasion of a forthcoming birthday would seem like an ideal time to do so. However, gifts of assets are not generally free of Capital gains Tax (CGT) if their market value exceeds the value of the cost to the donor (you).

For example, if David gifts a property to his daughter in 2008/9 worth £150,000 (which was bought for £90,000) he would technically make a gain of £60,000, even though no money has changed hands. The CGT bill payable by him on this deemed disposal would be £9,072 (£60,000 - annual CGT exemption of £9,600 = £50,400 x 18%). This would need to go on your tax return for 2008/9 and the tax settled by 31 January 2010.

So what if anything can you do about this? If you are married, you could transfer a half share of the property to your spouse/civil partner first. Transfers between spouses are CGG free. Both of you could then gift your shares in the property to utilise two annual exemptions. Care should be taken that the transfers are not too close together to avoid the risk of HMRC seeking to ignore the transfer to the spouse and taxing the entire gain on you.

Gifts can be spread over two or more tax years so that more than one annual exemption is used. For example, if you transferred half a share to your spouse and you each gifted a quarter share away for four years, then more of the gain each year could be covered by the annual exemption. To summarise you can make a tax free transfer of property to spouse/civil partner but not to children and other relatives.