If a gift of a property (or share of a property) is made or a property is sold at less than its market value, CGT is charged as if the donor had received the market value in cash.
This ruling does not apply to transfers (gifts) between spouses/civil partnerships. In this situation the donee is treated as having acquired the property at the date of the transaction but most importantly at the original purchase price. No CGT will be due until the receiving spouse/civil partner sells the property.
Example:
Joe is a 45% additional rate taxpayer who owns a BTL property originally purchased for £150,000. He gifts it to his son on 1 May 2013 when its value is £250,000. Joe is deemed to have received the market value and as such his CGT tax liability is:
Market value less original price £100,000
Less Annual Exemption 2013/2014 £(10,900)
Chargeable Gain £89,100
Tax liability @ 28% £24,948
However, there will be a practical problem in that no monies will have been received out of which to pay the CGT.
If Joe had gifted the property to his wife no CGT would be due on transfer but should his wife subsequently sell the property, the base value would be the original cost of £150,000.
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