01 Jul 2024

How does Capital Gains Tax work with gifts?

When we think about gifting to loved ones, we all want to understand the tax implications so we can plan the future with confidence. Capital Gains Tax responsibilities are an important part of estate planning, but do you pay Capital Gains Tax on gifts, and if so, who pays?

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Capital Gains Tax (CGT) is a tax on any profits you make when you sell, swap, giveaway or receive compensation for certain assets.

CGT is charged on the ‘gain’ made on non-cash gifts when these assets are sold. Examples include:

  • Property (other than your main home)
  • Your primary residence if it’s used for business purposes
  • Shares
  • Personal possessions worth at least £6,000 (with the exception of 'wasting assets' with a predictable lifespan of less then 50 years, such as cars and machinery)

Capital Gains Tax is a tax on the profit received when you sell or dispose of an asset that has increased in value since your acquired it. The gain – or the profit – is taxed, rather than the amount of money you receive. 

For example, if you buy a second home for £250,000 and sell it for £275,000, you've made a gain of £25,000.
  
CGT is due on the overall gains above the tax-free allowance, which is £3,000 for individuals or £1,500 for trusts.

GOV.UK has an online Capital Gains Tax calculator which could help you understand how much you might owe.

You may have to pay Capital Gains Tax when gifting an asset to someone, depending on who that person is.

You do not have to pay CGT on assets you gift (or sell) to a spouse or civil partner, unless you’re separated and did not live together during the tax year in question. Additionally, you don’t have to pay CGT on any assets you gift to charity.

When gifting an asset to a family member or ‘connected person’ (such as extended family members or business partners), you need to value the asset in order to determine whether you’ve made a capital ‘gain’. Any CGT owed would be based on the market value at the time the property is gifted, or ‘disposed’.

For the purposes of Capital Gains Tax, disposing of an asset is currently defined as the following:

  • Selling the asset.
  • Giving the asset away as a gift, or transferring it to someone else.
  • Swapping the asset for something else.
  • Receiving compensation for the asset, for example the insurance payout if a property was lost or destroyed.

If you were to gift an asset to a child, they would only need to work out whether they need to pay CGT if they later dispose of the asset. That's because Capital Gains Tax is paid by the person who sells the asset in question.

Where the asset is property, your child may decide to make it their primary residence, meaning there would be no CGT liability.

It's worth remembering that unless you've written your life insurance policy in trust, it will form part of the value of your estate. By writing the policy into a trust, the value of a life insurance payout would be unlikely to be considered part of your estate for Inheritance Tax purposes.


In theory, a transaction can be subject to both Capital Gains Tax and Inheritance Tax (IHT). For example, CGT could be due on the sale of shares or property in the estate if they've increased in value since the IHT valuation. In this case, some double tax relief may be available.

Inheritance Tax must be paid at the end of the sixth month after someone has passed away.  Some beneficiaries choose to sell the inherited property straight away, which may reduce the likelihood that its value will have appreciated for CGT purposes. 

In calculating the loss to the estate, no account is taken of any CGT (or any Stamp Duty or additional expenses) borne by the beneficiary.

If you’re tempted to avoid paying Capital Gains Tax by selling your asset to a family member for below market value, this is not advisable. HMRC will view this as a gift to a ‘connected person’, which includes children, parents, siblings, nephews and uncles, for example.

In these circumstances, not only would you have to pay CGT in full – you could also be fined. To avoid this scenario, the asset needs to be sold at the market value. 

Allowable losses for Capital Gains Tax

You can reduce your taxable gains if you report losses – called allowable losses – to HMRC. However, when gifting property to family you can’t deduct losses from the gift unless you offset a gain from the same person. This applies to gifts made to ‘connected people’, such as children and grandchildren, but also brothers, sisters, parents, grandparents, extended family members and business partners.

How to report your Capital Gains Tax

You can report and pay any Capital Gains Tax due by visiting GOV.UK. Alternatively, you can request a paper form from HMRC. If you’ve sold a residential property, you will need to report and pay any CGT owed to HMRC within 60 days of the sale.

Other ways to protect your family's finances

For more ideas on how to protect your loved ones' financial future, explore these Legal & General guides:

Find out more about our Over 50 Life Insurance

Meet our expert
Thomas May

Thomas May

Senior Propositions Manager, Retail Protection, Business, Tax and Trusts

Thomas oversees all tax, trust and business protection matters for our Retail Protection business at Legal & General. Thomas is our senior trust and estate administration expert and leads the development of new products, ensuring they comply with relevant regulations. Thomas joined us in 2006 and has a wealth of experience working across different parts of the business. He’s proud to support good outcomes for customers, particularly at claims stage when our help is most needed.

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