Q. My wife and I own a buy-to-let in addition to the property (worth more than £1 million) where we live. What is the most tax-effective strategy to give the buy-to-let to our child, who is already on the property ladder? Should it be via our will, as a gift in our child’s name without any reservation, or as a gift to a company in our child’s name? Or is there another way? Name and address supplied

Before transferring assets to your children, it’s prudent to discuss whether they are willing to accept them and in this case, whether they are comfortable managing the property as landlords. An effective gift for inheritance tax (IHT) purposes must be irrevocable, ensuring you do not need the income or equity from the property in the future.

It’s crucial that you do not retain any benefit from the property to make the gift effective for IHT planning, ensuring that rental income benefits your child.

The tax implications for each method differ and the suitability depends on your circumstances — a combination of these options might be the best approach.

Gifting During Your Lifetime

A lifetime gift is IHT-free provided you live seven years beyond the gift date. If you die within this period, the gift may be taxed up to 40 percent, with potential reduction due to taper relief for deaths occurring between three and seven years after the gift.

Capital gains tax (CGT) might apply. Transactions between connected persons (like you and your child) are assessed at market value. Thus, a lifetime gift would incur up to 24 percent CGT on any gain, calculated as the difference between the acquisition cost and the property’s market value at gift date. Consider how you will fund the CGT liability if you opt for an outright lifetime gift. Stamp duty might also be relevant.

Gifting Through Your Will

Transferring the property through your will includes the value in your estate, potentially subject to 40 percent IHT, subject to reliefs, allowances, and any nil-rate band remaining — worth £325,000 per person.

Asset values are reset for CGT at death, meaning that bequeathing the property avoids a CGT charge and offers your child a base cost equal to market value at your death.

Other Options

Transferring the property to a company owned by your child may induce a CGT liability for you and stamp duty for the company. It may also cause a lifetime IHT charge, depending on the transaction structure. Given these complexities, seek specialist tax advice if considering this option.

Your child must be comfortable managing a company, including annual accounts and corporate tax returns.

Another option is to place the property in a trust for your child, which may also result in an IHT charge and incur costs, but could defer any capital gain to a later date. Trusts may offer tax benefits, improved asset protection, and more flexibility for future transfers or rental income management.

Kate Aitchison is a private client tax partner at the accountancy firm RSM UK, specializing in capital gains tax, inheritance tax, succession planning, investment structuring, and tax residency.