Date posted: 16th Dec 2025
Often, in a tax planning meeting with a client, it can be suggested that some assets are gifted to family members and there are sometimes surprised faces when we suggested that the gift of an asset, can give rise to a tax charge, as the client is not receiving any proceeds from a third party sale, to pay the tax bill.
Careful planning is essential so that what feels like a generous gesture does not result in unexpected tax bills for you or your family.
What does “gifting” mean for tax?
For tax purposes, gifting usually means transferring an asset to someone else for free or for less than its market value.
Even if no cash is received, the tax rules often treat the gift as if it were a sale at full market value, which is where “dry” tax charges can arise.
When you gift an asset such as shares, property or a business interest, several taxes may need to be considered at the same time: CGT at the point of the gift, IHT over the following seven years (or even fourteen in some cases), and in the case of property, potential Stamp Duty Land Tax (SDLT) consequences.
Capital Gains Tax on gifts
CGT applies when you dispose of an asset for more than it cost you, and a gift is usually treated as a disposal at current market value. This means you may have to pay CGT even though you have not received any cash from the family member receiving the asset – the classic “dry” tax charge.
The gain is broadly the difference between what you originally paid (plus certain costs such as legal fees and improvements) and the asset’s market value at the date of the gift. The CGT rate depends on your total income and the type of asset (for example, higher rates apply to most residential property gains than to gains on shares).
In some instances, holdover relief can be helpful but this does not apply in all circumstances.
Inheritance Tax and the seven‑year rule
For IHT, most gifts to individuals are treated as “potentially exempt transfers” (PETs), which means they, in general, become fully exempt from IHT if you survive seven years from the date of the gift. If you die within that seven‑year period, the gift may be brought back into your estate when calculating IHT, with possible tapering of the tax on gifts made more than three years before death.
You can also use annual IHT exemptions to make smaller gifts that fall outside your estate immediately, such as the annual gift allowance and small gift exemptions, which can be very useful in regular family gifting strategies.
Larger gifts, particularly of property or share portfolios, need a more considered plan to balance IHT savings against immediate CGT costs.
Gifts with reservation of benefit
A key hidden trap is where you give an asset away but continue to benefit from it, often called a “gift with reservation of benefit”.
Common examples include gifting a rental or family home to children but continuing to live there rent‑free or continuing to receive the rental income after the transfer.
In these cases, HMRC may treat the asset as still part of your estate for IHT purposes, even though you no longer own it legally. That can lead to a situation where you have paid CGT at the time of the gift and still face IHT on the same asset on death – the worst of both worlds if not planned properly.
Care is also needed to make sure that you do not trigger the pre-owned assets tax regime – this can happen when, for example, you sell your family home, gift the monies to your children and they buy a property for you to live in, with the monies and you do not pay a market value rent to them for occupying the property.
Practical planning steps before gifting
Before making a significant gift, it helps to map out your assets, their current market values, and how much latent gain has built up in each. This allows you and your adviser to compare which assets are most efficient to gift now, which might be better held until death, and whether spreading gifts across tax years could reduce overall tax.
It is also important to run side‑by‑side projections: one showing the CGT you would pay today on a gift, and another showing the potential IHT if you retained the asset until death.
Combining these projections with your wider financial planning (for example, your ongoing income needs and care plans) helps ensure generosity to family does not compromise your own security.
How our tax team can help
Our specialist tax team can help you identify which assets are sensible to gift, how to structure those gifts, and what reliefs or exemptions may be available in your circumstances.
This may include assessing the use of trusts, family investment companies or staggered gifting to children and grandchildren to spread CGT and manage IHT exposure over time.
As ever, if you have any queries, please give us a call.
