1:00 AM 11th January 2025
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Gifting Or Selling A Holiday Home Explained: Key Considerations
A holiday home is likely a cherished asset - somewhere you’ve spent weekends and summers, maybe even enjoying the finer things in life. Now, you’re thinking about passing it on to a loved one or a trust. But, before you fire up the holiday home gifting engines, Partner at law firm SAS Daniels Ben Tyer, explains the tax implications.
![Image by Bruno from Pixabay]()
Image by Bruno from Pixabay
Gifting a Holiday Home to an Individual
You’ve got a fabulous holiday home that you’re keen to pass on to your children or loved ones and you’re thinking, "I’ll just give them the property now. What’s the worst that could happen?" Well, as with most things in life, there are tax implications.
1. Capital Gains Tax (CGT): The "Surprise, You’re Selling!" Tax
In the world of taxes, gifting someone a holiday home is treated as a “disposal” for Capital Gains Tax (CGT) purposes.
That means whether you’re gifting the entire home, selling it at a reduced price or selling it at full price, you might owe taxes on any increase in the property’s value since you first bought it.
CGT: You bought your holiday home back in the day for £100,000 and now it’s worth £500,000. Congratulations! But if you gift it, the government expects you to pay CGT on the £400,000 gain. CGT can be up to 24%, which means you could be looking at a bill for about £72,000 (though allowance and deductions are potentially available).
Relief? Of course, there are ways to ease the pain, like Private Residence Relief (PRR) or Letting Relief, but sadly, these don’t usually apply to holiday homes unless they’ve been your main residence.
2.
Inheritance Tax (IHT): The Seven-Year Game
Inheritance Tax (IHT) is the tax on your estate when you pass away, and gifts made within seven years of your death may still count toward the value of your estate for IHT.
The Seven-Year Countdown: Gifting your holiday home might seem like a smart way to avoid IHT, but there’s a catch. If you die within seven years of making the gift, the property is considered part of your estate for IHT purposes. IHT can be up to 40% on the value above your £325,000 threshold (though additional allowances may be available depending on your circumstances and estate planning strategies).
Relief: If you’re lucky enough to make it past the three-year mark after the gift, you might get a little relief in the form of Taper Relief. This reduces the IHT due depending on how long you survive after the gift.
![Ben Tyler]()
Ben Tyler
Gifting a Holiday Home to a Trust: The Plot Twist
Okay, so you’ve heard the talk about gifting to individuals, but perhaps you’re thinking, “Let’s get fancy and put this property into a trust!” Trusts are often a great way to control who gets the holiday home after your demise, but they come with their own set of complexities.
1. Capital Gains Tax (CGT) Again: Here We Go Again!
Just like gifting to an individual, gifting a property to a trust is also considered a “disposal” for CGT. So, you may owe tax on any capital gain, and this time, it could be the trust that takes on the responsibility for future CGT if the property is sold.
Discretionary Trusts: If you place your holiday home in a discretionary trust, you get to decide who benefits from the property (perhaps your children). However, you’ll still face a CGT bill when you transfer the home to the trust. And in some cases, if the trust sells the property, it could be subject to CGT as well.
2. Inheritance Tax (IHT): Trust Me, It’s Complicated
One of the main benefits of using a trust is that it can help reduce the amount of inheritance tax due upon your death. However, the value of the property may still be included in your estate for IHT purposes if you retain certain benefits (such as the right to use the property yourself).
Discretionary Trusts Tax Charges: If you set up a discretionary trust, it can be subject to an immediate tax charge of 20% if the value of the home is above £325,000 as well as periodic IHT charges every ten years.
And if you die within seven years of transferring the property into the trust, the value of the holiday home may still be counted as part of your estate and be subject to IHT.
Conclusion
While gifting a holiday home to an individual or trust can be a way to pass on a cherished asset, it’s not without its tax pitfalls. The taxes - Capital Gains Tax and Inheritance Tax - can quickly add up. So, before you hand over the keys to your beloved getaway, make sure to consult with a solicitor who can help navigate the best estate planning options. After all, “I’m the tax man and you’re working for no one but me” as the Beatles famously sang.
For more information, contact Ben Tyer at SAS Daniels here.