Gifting Property to Family: The Market Value Rule and When Holdover Relief Can Help

"I'm not selling it, I'm giving it to my daughter" is one of the more common sentences to precede an unwelcome CGT bill. HMRC does not care that no money changed hands. A gift of property to a connected person is taxed as if it sold for full market value, and without a relief in place, that charge falls due with no sale proceeds anywhere to pay it.

The market value rule: why a gift is not a tax-free event

Under TCGA 1992 section 18(3), any disposal between connected persons is treated for Capital Gains Tax purposes as taking place at market value, regardless of what was actually paid. "Connected persons" is defined broadly and covers a spouse's or civil partner's relatives, children, grandchildren, parents, grandparents, siblings, and the spouses of most of those relationships. Gifting a property to almost anyone in the family falls squarely within it.

The practical effect is that the donor's gain is calculated as though the property had been sold on the open market on the date of the gift, even though the actual transaction involved no consideration at all. If the property has grown substantially in value since it was bought, that can produce a real CGT liability with nothing from the transaction available to fund it — commonly called a dry tax charge. It is one of the most frequently underestimated costs of "just putting the house in the kids' names."

The one major exception: spouses and civil partners

Transfers between spouses or civil partners who are living together are treated completely differently. Under TCGA 1992 section 58, these transfers happen on a no gain, no loss basis — no CGT arises at the point of transfer, and the recipient simply takes on the donor's original base cost, carrying the eventual gain forward rather than crystallising it. This is the reason property is so often moved between spouses before a sale, to make efficient use of both parties' annual exempt amounts and marginal rate bands. It does not extend to gifts to children, parents or siblings, which sit under the ordinary connected-person market value rule.

Gift hold-over relief: narrower than most people assume

Where a market value gain does arise, gift hold-over relief under TCGA 1992 section 165 can defer it, but the relief is restricted to gifts of business assets. That broadly means shares in a trading company, assets used in the donor's own trade, or agricultural property — not an ordinary rental property held as an investment. An investor gifting a standard buy-to-let to a child cannot claim section 165 relief, because letting property is treated as an investment activity rather than a trade for this purpose.

Furnished holiday lets used to be the notable exception, since the regime treated them as a trade for Capital Gains Tax purposes and section 165 relief was available on a gift. That changed with the abolition of the FHL regime — see our article on the FHL tax changes — and gift hold-over relief is no longer available on furnished holiday lets gifted from 6 April 2025 onwards, other than under the narrow anti-forestalling rule for contracts unconditionally exchanged before 6 March 2024.

Where section 165 does apply, it does not eliminate the gain; it defers it by reducing the recipient's acquisition cost by the amount of the gain held over. The tax is not cancelled, only postponed until the recipient eventually disposes of the asset themselves.

Section 260 relief: the route that does reach rental property

A second, less well-known holdover relief exists under TCGA 1992 section 260, and it is not limited to business assets. It applies to any gift that is itself an immediately chargeable transfer for Inheritance Tax purposes — most commonly, a gift into a discretionary trust. Because the trigger for section 260 relief is the IHT treatment of the gift rather than the nature of the asset, an ordinary rental property gifted into a discretionary trust can access holdover relief in a way a direct gift to a child cannot.

This is not a free option. Gifting into a discretionary trust brings its own IHT consequences — an entry charge where the value gifted exceeds the available nil-rate band, and ongoing ten-year periodic and exit charges on the trust itself — plus the cost and administrative burden of running a trust. For a family thinking about longer-term succession of a portfolio, it is a genuine option worth modelling properly, not a shortcut. See our article on inheritance tax planning for landlords for how trust structures fit into a wider plan.

The SDLT trap on a mortgaged gift

A straightforward gift of an unencumbered property is normally free of Stamp Duty Land Tax, because there is no chargeable consideration. That changes the moment a mortgage is involved. Where the recipient takes on responsibility for an outstanding mortgage as part of the gift, HMRC treats the assumption of that debt as chargeable consideration under FA 2003 Schedule 4 paragraph 8 — effectively, the recipient is deemed to have "paid" the amount of debt they've taken on. If that figure exceeds the SDLT nil-rate threshold, SDLT is due on the debt assumed, and the additional dwelling surcharge can apply on top if the recipient already owns another property. Calling the transaction a gift does not change this outcome; what matters is whether debt moved with the property.

Paying the CGT without selling anything: instalment relief

Where a gift of land does trigger a CGT charge that section 165 or section 260 relief cannot cover, and where no cash arises from the transaction to pay it, TCGA 1992 section 281 allows the tax to be paid in ten equal annual instalments rather than in one lump sum, with interest running on the outstanding balance. It is a narrow provision, available only on gifts of land (including a gift into a settlement) where the donor and recipient jointly elect for it, but it is worth checking whenever a gift produces a genuine dry tax charge with no obvious source of funds to meet it.

What this means in practice

• Get a proper valuation before the gift completes — the market value figure is what HMRC will assess the gain against, and a defensible, contemporaneous valuation matters if the figure is ever challenged.
• Check whether any relief genuinely applies — section 165 rarely helps with a plain rental property, and reaching for section 260 means accepting trust complexity in exchange for the relief.
• Model the CGT before deciding on the gift, not after — the annual exempt amount is now small enough that most meaningful gains produce a real bill.
• Check for a mortgage — if debt is attached to the property, get the SDLT position confirmed before assuming the gift is exempt.
• Consider timing against wider portfolio and IHT planning — a gift that makes sense for succession purposes might make more sense structured through a limited company or trust than as a direct transfer.

Common questions

Do I pay CGT if I gift a property rather than sell it?

Usually yes. Under TCGA 1992 section 18(3), a transfer between connected persons is treated for CGT purposes as taking place at market value, regardless of what was actually paid, including where nothing was paid at all.

Is a gift to my spouse treated the same way as a gift to my children?

No. Transfers between spouses or civil partners living together qualify for no gain, no loss treatment under section 58. Gifts to children, parents, siblings and other connected persons are taxed at market value with no equivalent relief.

Can holdover relief prevent a CGT charge on a gifted property?

Only in limited circumstances. Section 165 relief is restricted to business assets and does not normally cover an ordinary rental property. Section 260 relief is wider but only applies where the gift is itself an immediately chargeable transfer for Inheritance Tax, such as a gift into a discretionary trust.

Is SDLT payable on a gift of property if there's a mortgage on it?

It can be. If the recipient takes over responsibility for the outstanding mortgage, HMRC treats the debt assumed as chargeable consideration under FA 2003 Schedule 4 paragraph 8, and SDLT can be due on that figure even though the transaction is described as a gift.

This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.

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