Trap one: CGT even if your children pay nothing
A gift of an investment property to a child is generally a CGT disposal at market value. The parent may have a chargeable gain based on today's value minus the appropriate acquisition cost and reliefs, even if the child pays £0. A family agreement describing the transaction as a gift does not cancel that CGT computation.
If the property was the parent's actual main residence, PPR may cover some or all of their gain, depending on the full history. It is unsafe to infer that a former home let for many years remains completely exempt.
Trap two: the seven-year IHT rule is not the whole answer
A genuine outright gift to an adult child may qualify as a potentially exempt transfer. Survival for seven years can be significant, but the rule does not undo the donor's CGT liability and is subject to benefits being genuinely given up.
A gift of a home that the parent continues to occupy rent-free can be caught by the gift-with-reservation rules and remain within the IHT estate. Paying market rent may change the position, but creates real costs and must be genuine. The same concern can arise if the parent gives away a let property but continues to receive its rental income rather than allowing the child genuine enjoyment of the investment.
Trap three: a mortgage can bring SDLT and consent issues
An existing mortgage cannot simply be ignored. A recipient who assumes liability for mortgage debt may provide chargeable consideration for SDLT purposes. A lender may refuse the proposed transfer, require a new mortgage or impose different conditions.
A child who becomes an owner may also have difficulty obtaining their own first home, may become exposed to future CGT on the gifted property, and could have relationship, creditor or estate-planning risks that the family had not intended.
Trap four: gifts to minors and income arrangements
Gifting a rental property or income-producing interest to a minor child can invoke settlements legislation, trust and legal-capacity issues. Where a parent provides assets yielding more than the statutory de minimis amount of income to their unmarried minor child, income can be taxable on the parent under the relevant rules.
A trust is not a simple workaround. An adult child's circumstances also matter; for example, their own mortgage eligibility, income tax bands and existing property ownership may change the family's overall result.
Compare gifting now with passing property on death
An outright gift today may incur CGT while a transfer on death generally does not crystallise the deceased's CGT gain, although IHT may be due and beneficiaries normally inherit a value for CGT purposes based on the death valuation. This makes an integrated CGT and IHT appraisal essential.
Before giving away a home, consider whether the parents need its rental income or occupancy, the children's long-term intentions, the wills, insurance, lender conditions, care-fee considerations and all applicable residence and tax rules.