Gifted Equity Stamp Duty: Family Transactions
How SDLT works when selling below market value to family, and what counts as chargeable consideration.
Key Takeaways
- SDLT on gifted equity is based on actual consideration paid (price + mortgage assumed), not the market value of the property.
- If a parent sells a £300,000 mortgage-free property to a child for £150,000, SDLT is on £150,000 only.
- Mortgage assumption counts as consideration - if there is a £100,000 mortgage and the child takes it on, that adds £100,000 to the consideration.
- Market value rules apply when companies transfer property to connected persons - individuals have more flexibility.
- The gifted portion is a potentially exempt transfer for inheritance tax - the 7-year rule applies.
- Capital gains tax applies to the selling parent on the market value (not actual price) of the property.
In this article
What is Gifted Equity?
Gifted equity refers to the portion of a property's value that is transferred without payment - typically when a parent sells a property to their child at a price below its market value. The "gift" is the gap between what the child pays and what the property is actually worth.
For example, if a property is worth £400,000 and the parent sells it to their child for £250,000, the gifted equity is £150,000. The child benefits from immediate equity in the property above and beyond what they have paid.
Gifted equity schemes are often used to help children onto the property ladder or to facilitate family property transfers. They require careful consideration of SDLT, capital gains tax, and inheritance tax implications. Our gifting property guide covers the broader picture, while this page focuses specifically on the SDLT position.
Use our stamp duty calculator to estimate SDLT on your specific gifted equity transaction.
SDLT on Actual Consideration
For transactions between individuals (including family members), SDLT is charged on the actual consideration paid - the actual price agreed between the parties. HMRC does not substitute market value for SDLT purposes when individuals transact with connected family members (unlike the position for companies).
This is a significant advantage of gifted equity transactions. If a parent sells a £500,000 property to their child for £300,000, SDLT is calculated on £300,000, not £500,000. This can result in a substantial saving.
SDLT Comparison: Full Price vs Gifted Equity
| Scenario | Consideration | SDLT |
|---|---|---|
| Full market value sale: £400,000 | £400,000 | £10,000 |
| Gifted equity sale: £200,000 to child | £200,000 | £1,500 |
SDLT saving: £8,500 by using gifted equity (assuming property is mortgage-free and no ADS applies)
Mortgage Assumption as Consideration
Where the property being gifted has an outstanding mortgage, the SDLT position becomes more complex. If the buyer (child) takes on the existing mortgage as part of the transaction, the mortgage assumption counts as additional consideration for SDLT purposes.
The total SDLT consideration is therefore: cash price paid + outstanding mortgage assumed.
Example with Mortgage
Parent sells £400,000 property to child for £200,000. The property has a £100,000 outstanding mortgage. The child takes on the mortgage and pays £200,000 cash.
SDLT consideration = £200,000 (cash) + £100,000 (mortgage) = £300,000
SDLT at standard rates = £5,000
To minimise SDLT in a gifted equity transaction, it may be advantageous for the parent to repay any outstanding mortgage before the transfer, so that the child's consideration is limited to the cash purchase price.
Market Value Rules Explained
While individual-to-individual transactions use actual consideration for SDLT, there are specific situations where market value applies:
| Transaction Type | SDLT Basis |
|---|---|
| Individual sells to family member below market value | Actual consideration |
| Company sells/transfers to connected individual | Market value (Section 53 FA2003) |
| Individual transfers to connected company | Market value |
| Individual to individual (any relationship) | Actual consideration |
Connected Party Company Warning
If a family company or trust (with corporate structure) is involved in the transfer, market value rules may apply and the SDLT base will be the property's open market value, not the discounted price. This significantly reduces the SDLT benefit of gifted equity structures involving companies.
Parent-to-Child Gifted Equity Schemes
Gifted equity is commonly used in schemes where parents help their children buy a first home. These structures can take several forms:
Scheme 1: Sale at Discount
Parent sells their existing property (or one they own) to the child at below market value. Child pays a discounted price partly by cash and partly by a new mortgage. SDLT is on the cash price plus any mortgage assumed or taken out.
Scheme 2: Gifted Equity for Deposit
Child buys a third-party property at full market value, but parent provides a cash gift as deposit. The SDLT is based on full market value (since the child is paying full price to the seller). The gifted cash deposit does not separately attract SDLT.
Scheme 3: Partial Gift, Partial Sale
Parent transfers their own property to the child, with part being a sale (child pays below market value) and part being an outright gift. SDLT applies only to the consideration element. The gifted portion generates no SDLT but may have IHT implications.
Our guide on helping children buy property covers these schemes in more detail, including mortgage options for children and shared ownership alternatives.
Worked Example: Parent Sells £300k House to Child for £150k
This example shows the SDLT calculation for a typical gifted equity transaction where no mortgage is involved.
Scenario Details
- Property market value: £300,000
- Sale price to child: £150,000 (50% discount)
- Outstanding mortgage: Nil (parent has repaid)
- Child's status: First-time buyer, no other properties
- Cash payment from child: £150,000
Step 1: Identify Consideration
Cash paid: £150,000
Mortgage assumed: £0
Total consideration: £150,000
Step 2: Apply Standard SDLT Rates (post-April 2025)
| Band | Rate | Tax |
|---|---|---|
| £0 – £125,000 | 0% | £0 |
| £125,001 – £150,000 | 2% | £500 |
| Total SDLT | £500 |
Compare with full market value purchase: £300,000 @ standard rates = £5,000 SDLT.
SDLT saving from gifted equity: £4,500.
Does First-Time Buyer Relief Apply?
Yes, if the child is a genuine first-time buyer. FTB relief gives 0% on up to £300,000 for properties valued at or under £500,000. However, FTB relief is calculated on the chargeable consideration (£150,000), and since this is under £300,000, the SDLT is £0 under FTB rules. But HMRC may scrutinise FTB claims on below-market-value transactions to confirm the property is truly the buyer's first home.
Lender Requirements
Most mainstream mortgage lenders will accept gifted equity as an equivalent to a cash deposit, but they have specific requirements:
- Gifted equity letter: The selling parent must provide a formal gifted equity letter confirming the amount gifted, that it is non-repayable, and that the parent has no financial interest in the property after sale.
- Solicitor confirmation: The lender may require the conveyancing solicitor to confirm the gifted equity arrangement in writing.
- LTV assessment on market value: Even though the child pays less, the lender assesses LTV against the property's true market value. This can actually improve the LTV ratio significantly.
- No charge on property by parent: The lender will not permit the parent to take a charge on the property in return for the gift - the transfer must be an unconditional gift.
LTV Benefit of Gifted Equity
If a child buys a £400,000 property for £250,000 (£150,000 gifted equity) with a £200,000 mortgage, the LTV is 50% (£200,000 mortgage / £400,000 value). This could qualify for significantly better mortgage rates than a standard first-time buyer with a 5% or 10% deposit.
Inheritance Tax Implications
The gifted portion of the transaction (the discount below market value) is treated as a potentially exempt transfer (PET) for inheritance tax purposes. The key rules are:
- If the parent survives 7 years after the gift, the gifted amount falls outside the estate entirely - no IHT liability.
- If the parent dies within 7 years, the gifted amount may be included in the estate and potentially subject to IHT.
- Taper relief reduces the IHT rate for gifts made between 3 and 7 years before death.
- Annual gift exemption of £3,000 per year may partially offset the gifted amount.
For parents in good health, the 7-year rule makes gifted equity a very tax-efficient strategy. For older or unwell parents, the IHT implications need careful consideration.
Capital Gains Tax for the Selling Parent
This is often the most surprising tax implication of gifted equity transactions. For capital gains tax purposes, a sale to a connected party (including children) is deemed to take place at market value, not the actual price paid.
This means the selling parent calculates their capital gain as if they sold at market value, even though they only received a discounted price. For a property worth £400,000 originally purchased for £150,000, the parent faces CGT on a £250,000 gain - regardless of the discounted sale price to the child.
Principal Private Residence Relief
If the property being transferred was the parent's main home for the entire ownership period, principal private residence (PPR) relief fully exempts the gain from CGT. This is why gifted equity is most common when parents are downsizing - they transfer the family home (PPR exempt) to a child. If the property was ever a buy-to-let or second home, partial CGT will apply.
CGT on residential property is charged at 18% (basic rate) or 24% (higher rate) for gains on UK property after 6 April 2024. Report and pay CGT to HMRC within 60 days of completion using the HMRC UK Property account.
SDLT Rates Reference
| Band | Standard Rate | With 5% Surcharge |
|---|---|---|
| Up to £125,000 | 0% | 5% |
| £125,001 – £250,000 | 2% | 7% |
| £250,001 – £925,000 | 5% | 10% |
| £925,001 – £1,500,000 | 10% | 15% |
| Above £1,500,000 | 12% | 17% |
Alternatives to Gifted Equity
Gifted equity is not the only way to transfer property within a family. Consider these alternatives:
- Outright gift: Transfer the property with no consideration. SDLT is nil (unless there is a mortgage). But CGT at market value and IHT 7-year rule both apply.
- Inheritance via will: No CGT (assets rebased at death) and potentially no IHT if estate is within the nil-rate band. But the child receives the property only on death.
- Joint ownership: Parent and child jointly own the property. SDLT applies only to the child's share purchased. The parent retains an interest.
- Trust arrangement: Property held in trust for the benefit of the child. Avoids immediate transfer but has its own IHT and SDLT complications.
Read our guides on transferring property to children and trust-to-beneficiary transfers for detailed analysis of these alternatives.
Calculate Your Gifted Equity SDLT
Enter your property details to calculate the stamp duty on a gifted equity transaction.
SDLT Payable
£500
Total consideration: £150,000
Gifted Portion
£150,000
Savings vs Full Price
£4,500
Frequently Asked Questions
Can I sell my house to my child for £1 to avoid stamp duty?
Technically for SDLT purposes, a sale for £1 to a family member results in SDLT of £0 (under the threshold). However, if there is any outstanding mortgage, the mortgage assumption would be the consideration. Also, the parent would face CGT on market value minus original cost, and the gifted equity represents a PET for IHT purposes. Lenders also will not mortgage a property purchased for £1.
Does my child pay stamp duty on the full market value or the discounted price?
Your child pays SDLT on the actual consideration - the discounted price agreed, plus any mortgage they assume. For transactions between individuals (even close family), HMRC does not substitute market value for SDLT. This is different from CGT, where the selling parent is taxed as if they sold at market value.
What if the gifted equity makes my child liable to the additional dwelling surcharge?
If your child already owns a property and you are transferring a second property to them (even at a discounted price), the 5% additional dwelling surcharge applies to the chargeable consideration. The surcharge is based on the buyer's ownership status, not the relationship between buyer and seller or the price paid.
Does gifted equity affect my child's first-time buyer relief?
First-time buyer relief can apply to a gifted equity purchase provided the buyer is a genuine first-time buyer (has never owned a residential property anywhere in the world) and the property is used as their only or main residence. The relief applies to the chargeable consideration (discounted price), giving 0% on up to £300,000 for properties valued at or below £500,000.
Can I use gifted equity from a grandparent or sibling?
Yes. The SDLT rules for gifted equity apply to any transaction between individuals regardless of family connection. A grandparent can sell at a discount to a grandchild, and a sibling to another sibling. The SDLT is on actual consideration in all cases. However, IHT and CGT rules also apply with the same principles: connected party market value for CGT and PET rules for IHT.
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Emma Richardson, MRICS
Chartered Surveyor & Property Tax Specialist
Emma Richardson is a RICS-qualified Chartered Surveyor with over 12 years of experience in UK property taxation. She founded Stamp Duty Calculator to help buyers understand the complex world of property transaction taxes.