Gifts are taxed even if no money changes hands. Tax law states you
have sold the property at market value so you must pay Capital
Gains Tax (CGT) on the ‘deemed’ capital profit even
though you have no proceeds. There is a get-out clause for spouses
who can transfer property to each other with no CGT arising if
they are living together at the time.
A way around this problem is to transfer the property into a discretionary
trust set up to benefit the person you want to give the property
to, known as the beneficiary. There would normally be a CGT charge
at this stage, but you can postpone this tax by signing an election
under Taxation Charge Gains Act 1992, section 260. This transfers
the profit you have already made on the property into the trust.
When the trustees eventually sell the property they pay tax on
the increase in value of the property from the date you originally
If you occupied the property as your main home the CGT bill can
be reduced in proportion to the period you lived there. This
relief can also be used when a beneficiary of the discretionary
trust lives in the property. However, if you used the section
260 election to postpone the CGT when you transferred the property
to the trust, this main residence relief cannot be used.
If you give away a property but continue to use it in some way,
the gift may be disregarded for inheritance tax, so you have
to pay tax on it when you die although you do not technically
own the property. There are other tax issues concerning gifts
with reservation so please talk to us about any plans you have
to make gifts of valuable assets before you sign the deeds.
The gift of a property into a discretionary trust is subject to
an immediate inheritance tax charge calculated at a lifetime rate
of 20% on the value of the property in excess of £263,000
(budget increase). So if the property is worth less than £263,000
and no other assets have been gifted into a discretionary trust
within the last 7 years, IHT is charged at 0%, and no tax is actually