How to Use Property Gifting to Reduce Inheritance Tax in the UK
- bes Accountancy Services
- Aug 3
- 4 min read
Reducing inheritance tax on property in the UK is one of the most common challenges faced by landlords and homeowners with multiple properties. While many people understand the tax implications of leaving property in a will, fewer realise the long-term benefits of strategic property gifting during their lifetime. If planned correctly, gifting property six to seven years before death can significantly reduce your estate’s exposure to inheritance tax.
In this guide, BES Accountancy explains how it works, what pitfalls to avoid, and how we can help you model the most tax-efficient strategy for your assets.
Thinking of gifting property to your children? Call our director Besnik today: 07816264205
Understanding Inheritance Tax on Property in the UK
Inheritance tax (IHT) is payable on estates valued over £325,000, with property often being the largest contributor to this threshold. The standard rate is 40 percent on the value above this threshold. Property owners in London and the South East are particularly vulnerable to high IHT bills due to rising house prices.
However, with effective planning, you can significantly reduce your tax exposure. One common method is to gift a property during your lifetime and survive for at least seven years after doing so. This approach, known as the “seven-year rule,” removes the value of the property from your estate for IHT purposes.
This guide focuses on how gifting property to children or other family members can minimise your estate’s IHT liability, and what other taxes you must consider as part of your planning.
Want to dive deeper into accounting for businesses?
Read our related blog, where we provide a full guide to submitting your File Your Tax Return Early.
Gifting Property to Children: Tax Considerations You Must Know
While the idea of gifting property to children sounds straightforward, it carries important tax consequences beyond IHT. These include:
Capital Gains Tax (CGT): Unlike when passing assets through a will, CGT is triggered at the time of gifting. If the property has increased in value since you bought it, you may be liable for CGT on the gain.
Loss of Use: Once gifted, you no longer legally own the property. If you continue living in or earning rent from it, it could still be counted as part of your estate unless rent is paid at market value.
Stamp Duty Land Tax (SDLT): Although gifts are usually exempt from SDLT, this exemption may not apply if the recipient assumes a mortgage.
This is why consulting a property tax accountant in London, like BES, is vital. We can assess the CGT implications, model IHT savings, and structure the gift appropriately.
When Is the Right Time to Gift Property?
The best time to gift property to children is typically at least seven years before your intended estate planning horizon.
The UK’s “seven-year rule” works on a sliding scale:
0 to 3 years before death: 40 percent IHT
3 to 4 years: 32 percent
4 to 5 years: 24 percent
5 to 6 years: 16 percent
6 to 7 years: 8 percent
Over 7 years: 0 percent
This makes early planning critical. If your rental property has appreciated and you expect a high IHT bill, starting the gifting process in your 60s or early 70s can be the difference between a tax-heavy estate and a protected legacy.
Why This Strategy Is Overlooked
Most people associate inheritance tax with passing on the family home, not investment properties. However, landlords and those with second homes are particularly well-placed to benefit from gifting strategies.
Unfortunately, many people:
Delay planning until it is too late.
Do not realise CGT applies at the time of gifting.
Assume gifts of property do not require professional input.
The reality is, even a well-intentioned gift can result in significant tax charges if not correctly structured. BES Accountancy can help you avoid these costly mistakes by providing tailored tax forecasts and guidance.
BES Accountancy uses tools like Xero and QuickBooks to help clients prepare property tax forecasts, file returns, and avoid costly surprises.
Why Work with BES Accountancy?
BES Accountancy is a leading London-based accounting firm specialising in property and inheritance tax planning. Founded in 2020 and led by AAT-licensed bookkeeper Besnik Vata, we support clients across the UK, offering services such as:
Inheritance tax planning services
Capital Gains Tax reporting
Gift structuring and asset transfers
Bookkeeping, payroll and VAT
Our team of five professionals uses Xero and QuickBooks to provide real-time insight and documentation.
We combine tax knowledge with practical estate planning to help you make confident, informed decisions.
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Additional Insights and Resources
Let BES Accountancy handle the paperwork while you focus on your priorities.
Call 07816264205 or visit us at our London office for a free consultation.
FAQ: Gifting Property and Inheritance Tax
1. Do I have to pay inheritance tax if I gift my property?
No IHT is payable if you live more than seven years after gifting. However, CGT may apply at the time of the gift.
2. What happens if I continue living in the gifted property?
It may still count towards your estate unless you pay full market rent to the new owner.
3. Can I gift a rental property to my children?
Yes, but it triggers CGT and can affect income tax for the recipient. BES can help model these outcomes.
4. Do I need a solicitor and an accountant to gift property?
Yes, legal ownership transfer requires a solicitor. For tax planning, an accountant is essential.
5. Can BES Accountancy help with both CGT and inheritance tax advice?Absolutely. We specialise in combining CGT reporting with strategic IHT planning.
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