Give it away, give it away, give it away now!

Written by Claire Thompson | Wills, Trusts, Tax and Probate team |20 September 2023

If gifting a buy-to-let to let property, shares or investments is something that you are considering you might want to make that gift sooner rather than later!

A gift of a property shares or investments is considered a disposal for Capital Gains tax purposes which means that even though you don’t receive any money from the person receiving the property, Capital Gains tax can still arise.

As last year’s autumn budget highlighted, the annual allowance for Capital Gains tax has become a lot less generous. The annual Capital Gains Tax allowance was reduced from £12,300 in the tax year 2022/2023 to £6,000 for the tax year 2023/2024. The allowance is set to drop again in April 2024 to £3,000 so if you are considering making a gift, you may wish to act quickly.

However, just because a gift is tax efficient, doesn’t mean that it is practical. It may be that you would like to gift your property to your intended beneficiary but that they are not in a position to receive the property. One way of making sure that you get the benefit of the higher capital gains tax allowance now while making sure that your beneficiary doesn’t get the gift before they are ready is to place the property into a trust for their benefit.

Of course, Capital Gains tax is not the only tax that you could save by gifting a buy-to-let property. Gifting is one of many ways to reduce your inheritance tax liability. This is because, under current rules, if you survive a gift by seven years it will not be aggregated with your estate for inheritance tax purposes.

However, in order for a gift to leave your estate, it must be a ‘true’ gift.  You would need to ensure that you do not require the rent from your buy-to-let property as keeping this while gifting the property would make this a ‘gift with reservation of benefit’ and the property would not leave your estate for inheritance tax purposes regardless of how many years you survive the gift.

This is the main reason why a gift of your home is not generally tax efficient. If you put your property into the name of another person (such as your child) but continue to live in the property it will still be included in your estate for inheritance tax purposes. You also run the risk of making your living situation vulnerable as if your child choses they could sell the property leaving you homeless. If your child were to divorce, your home would be considered an asset of their marriage and you could forced to leave. If they were made bankrupt your home could be used to settle your child’s debts and if they predeceased you the property would pass under the terms of their Will.

If you like advice on tax planning or gifting property, please call our expert Wills, Trusts, Tax and Probate team on 01752 827067 or email wills@nash.co.uk.