Gifting a property in the UK involves several tax considerations, which can vary depending on whether the property has an outstanding mortgage. Here’s an updated overview reflecting changes effective from 1 April 2025:
1. Stamp Duty Land Tax (SDLT)
Without a Mortgage:
• Transferring property as a gift without any consideration (payment) typically does not incur SDLT.
With a Mortgage:
• If the recipient assumes responsibility for an existing mortgage, this is considered “chargeable consideration” for SDLT purposes.
• SDLT Rates from 1 April 2025:
• Up to £125,000: 0%
• £125,001 to £250,000: 2%
• £250,001 to £925,000: 5%
• £925,001 to £1.5 million: 10%
• Above £1.5 million: 12%
• For example, if the transferred mortgage is £200,000:
• 0% on the first £125,000 = £0
• 2% on the remaining £75,000 = £1,500
• Total SDLT: £1,500
Note: These rates reflect the changes effective from 1 April 2025.
2. Inheritance Tax (IHT)
• Potentially Exempt Transfer (PET): Gifting property is considered a PET. If the donor survives for seven years after the gift, no IHT is due.
• With Reservation of Benefit: If the donor continues to benefit from the property (e.g., by living in it without paying market rent), the gift remains part of their estate for IHT purposes.
• With a Mortgage: The presence of a mortgage does not alter the IHT treatment directly. However, if the recipient assumes the mortgage, the value of the gift is reduced by the mortgage amount, potentially affecting the overall estate valuation.
Note: The IHT nil-rate band remains at £325,000, frozen until 6 April 2028.
3. Capital Gains Tax (CGT)
Without a Mortgage:
• Main Residence: If the property was the donor’s main residence, Principal Private Residence Relief may apply, potentially exempting the gain from CGT.
• Second Property/Investment: If not the main residence, CGT is calculated based on the property’s market value at the time of the gift.
With a Mortgage:
• The existence of a mortgage does not change the CGT calculation. The donor is deemed to dispose of the property at market value, and any gain is subject to CGT.
CGT Rates from 30 October 2024:
• Basic Rate Taxpayers: 18% on gains.
• Higher Rate Taxpayers: 24% on gains.
Note: The annual CGT exemption is £3,000 for individuals in the 2025/26 tax year.
4. Income Tax
• There are no immediate income tax implications when gifting a property.
• If the recipient rents out the property, they must declare the rental income and pay income tax accordingly.
Key Takeaways:
1. SDLT Implications: Assuming a mortgage during a property transfer is considered chargeable consideration, potentially incurring SDLT based on the outstanding mortgage amount.
2. IHT Considerations: Gifting property is a PET for IHT purposes; surviving seven years after the gift can mitigate IHT liability.
3. CGT Obligations: The donor may be liable for CGT based on the property’s market value at the time of the gift, with rates of 18% or 24% depending on the taxpayer’s income level.
Navigating property transfers and their tax implications can be complex. For personalised advice tailored to your specific situation, please contact us. We’re here to assist you in understanding and managing these tax considerations effectively.
