Tax essentials when gifting or buying property for the next generation

Gifting a residential property or purchasing one for the next generation can be an effective way to transfer wealth and help them onto the property ladder.

However, UK tax rules are complex, and the implications vary depending on whether you gift an existing property or acquire a new one in their name. 

1. Stamp Duty Land Tax (SDLT)

Gifting an existing property: Where a property is gifted outright and no consideration is given, no SDLT is payable. This applies only where the property is unencumbered. If the recipient assumes a mortgage, SDLT is calculated on the debt transferred. 

Buying a property in a child or grandchild’s name: SDLT is calculated in the usual way based on the purchase price. If the child is a first‑time buyer, First‑Time Buyers’ Relief may apply provided they are the genuine purchaser and have never previously owned a property.  The property must be intended to be their home, if you are buying an investment property then First‑Time Buyers’ Relief would not be available. 

Owning an interest in a residential property can impact your child’s or grandchild’s ability to claim First‑Time Buyers’ Relief on any purchase of their first home as they will no longer qualify for this favorable SDLT regime.  It could also mean they suffer the surcharge rates of SDLT on that later purchase. 

2. Capital Gains Tax (CGT)

A gift of property is treated as a disposal at market value. Gains on non‑main‑residence properties are taxable, subject to the annual exemption. If the gifted property is the donor’s main residence, Private Residence Relief may reduce or eliminate CGT. Where a property is bought in a child’s name, future gains belong to the child. 

3. Inheritance Tax (IHT)

A gift of property is a Potentially Exempt Transfer. The donor must survive seven years for the gift to fall outside their estate. Continuing to occupy the property rent‑free may create a Gift with Reservation of Benefit, meaning the property remains in the estate. Buying a property in a child’s name is also a gift for IHT purposes. 

4. Legal capacity and ownership

Children under 18 cannot legally own property; purchases must be held on trust until adulthood. This has practical and tax implications which need to be explored before any purchase or transfer takes place. 

If you need advice on gifting property and what tax implications this may have for you, please do get in touch with one of our experts.