Let's look at what happens when Mark gifts a rental property to his daughter, Laura. This is a transaction between 'connected persons', so special CGT rules apply.

Mark bought a rental property years ago for £150,000. It is now worth £400,000. He decides to gift it to his daughter, Laura, for free.

The Market Value Rule

Because Mark and Laura are 'connected persons', HMRC ignores the fact that no money was exchanged. For Capital Gains Tax purposes, Mark is treated as if he sold the property to Laura for its full market value.

Step 1: Calculate the Capital Gain

The gain is calculated using the market value at the time of the gift.

£400,000 (Market Value) - £150,000 (Original Cost) = £250,000 (Total Gain)

Step 2: Calculate the Tax Due

Mark must now calculate the Capital Gains Tax using our Capital Gains Tax calculator due on this £250,000 gain. After deducting his annual allowance, the remaining gain will be taxed at the residential property CGT rates (18% or 24%).

This rule prevents people from avoiding CGT by simply giving assets to family members instead of selling them.

How useful was this article?

☆

Looking for something else?

Just browsing? Return home for a list of all articles.