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‘I want to give my son a flat I rent out in Belfast, will there be any tax on this gift?’

Tax Corner: Capital gains tax on gifts of property

Red brick houses on a street in Belfast.
In last week’s budget, it was announced that the higher rate of CGT on residential property gains will be cut from 28% to 24% for disposals from 6th April 2024. (Getty Images/iStockphoto)

QUESTION: My son has recently finished university and I would like to gift him a flat I currently rent out in Belfast to allow him to live closer to his new job. Will there be any tax on this gift?

ANSWER: A gift is treated as a disposal for capital gains tax (CGT) purposes.

The gift of property to your son will be taxed based on the current market value of the property.

HMRC will treat you as if he had paid you the current market value of the property.

Therefore, any increase in the value of the property from when you acquired it will be your capital gain.

Prior to applying the CGT rates, you would be entitled to deduct your annual exemption.

For the 2023/24 tax year the annual exemption is £6,000.

However, if you make the gift after 5th April 2024 the annual exemption for the 2024/25 tax year is reduced to £3,000.

Therefore, if you expect to have a gain and you have not already used your CGT annual exemption, you should work with your solicitor to transfer the property before 6th April 2024.

You may also have capital losses from the current or prior years that could also reduce your taxable gain.

CGT on residential property is either 18 per cent or 28 per cent depending on whether you are a basic or higher rate taxpayer.

However, last week’s budget announced that the higher rate of CGT on residential property gains will be cut from 28% to 24% for disposals from 6th April 2024.

Gains on disposal of residential properties must be declared to HMRC within 60 days of the transfer and any liability also paid by that date.

Forward planning is required since a government gateway account is required to submit the CGT return and that your records are up to date to estimate the level of your income for the entire tax year since the CGT rate depends on this.

This could be a lot of information to gather in 60 days, however if you miss the deadline penalties and interest are applied.

There should be no stamp duty land tax (SDLT) payable on the transfer of the property to your son if it is gifted.

However, if the property is mortgaged and your son assumes this liability then SDLT will be due based on the normal SDLT thresholds and rates.

Before making a final decision on whether to make a gift to your son, the Inheritance tax implications should also be considered.

Timing of your gift is important to ensure you can maximise your reliefs and have sufficient funds to meet any payment deadlines, your tax adviser can assist with this as well as start the process so you can plan for the liabilities and filings required.

KellyAnne Murtagh
KellyAnne Murtagh KellyAnne Murtagh.

· KellyAnne Murtagh (k.murtagh@fpmaab.com) is senior tax manager at FPM Accountants Ltd (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.