Many people who have held buy-to-let properties for many years may now find themselves mortgage-free and enjoying a steady rental income.

But as the tax landscape evolves, especially around inheritance tax (IHT), these same clients are increasingly asking: should I gift the property to my children – and if so, how?

With inheritance tax (IHT) thresholds unchanged since 2009 and further frozen until 2030 as well as pensions becoming IHTable from April 2027, it’s no surprise that families are reviewing their entire asset base to ensure they pass on wealth in the most efficient way.

Here are three common options used when gifting property – and the key considerations that come with each.

1. Gift the Property Directly to Children

You can gift a property directly to children during your lifetime however there are still some potential tax and legal pitfalls:

• You must survive 7 years before the value of the gift falls outside your estate for IHT purposes.
• You must give up all benefit from the property for the gift to be effective for IHT purposes.
• Capital Gains Tax (CGT) will apply based on the market value at the time of the gift, even though no money has changed hands. This means you will need to cover the tax bill from other funds.
• If gifting to multiple children – decision making disputes can arise between siblings on property management/maintenance and repairs.
• Does property ownership impact your children’s financial position? Each child will be taxed individually on their share of rental income.
• Do the children want the responsibility of property upkeep/maintenance?
• Legal fees and conveyancing costs will apply for transferring the title.

2. Settling property into trust

For those wanting to gift property while retaining more control – especially where grandchildren or vulnerable beneficiaries are involved – trusts can be a useful vehicle.

• CGT may still apply, though holdover relief may be available depending on the structure of the trust.
• If the value of the property exceeds the nil rate band (£325,000), a 20% IHT charge may apply immediately – and more if the donor dies within 7 years. The trust may also be subject to IHT charges every 10 years.
• The use of a trust ensures the property stays within the family line. It can also help protect the property from creditors or divorce settlements.
• Trusts require registration and ongoing tax reporting to HMRC.
• There are also professional costs to set up and maintain the trust.

3. Sell the Property, Then Gift the Proceeds

Selling and then gifting the cash proceeds often feels like the cleanest option – but it still comes with similar tax consequences.

• You must still survive 7 years before the value of the gift falls outside your estate.
• Capital Gains Tax (CGT) will apply on the sale based on the property’s market value less its original cost (plus any allowable expenses or improvements – assuming records are available).

What’s Right for You?

Gifting property can be a meaningful way to reduce inheritance tax, support your family in their lifetimes, and start passing on your wealth with intention. But it’s not just a financial decision – it’s about the legacy you want to leave.

That means thinking beyond tax. It’s about how and when you want to gift, what kind of responsibility or flexibility you want your children to have, and how these choices fit within your broader values and financial plan.

A Financial Planner can help you:

• Understand the tax and legal implications of each option
• Model how gifting now could affect your own financial security longer term
• Coordinate with legal and tax advisers to ensure everything is structured properly
• Think through the timing, complexity, and long-term impact of your decision

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

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