Thanks for clarifications in question.
The first tax implication would be Capital Gains Tax (CGT) on the sale of the property, because it's not a main residence.
The amount payable depends on other things too:
- First, everyone has £11.3k of CGT allowance before tax is payable
- Second, the rate you pay depends on your Income Tax bracket for the tax year in question. For residential property gains, the rates are different from other assets. They are:
- 18 per cent for Basic Rate income tax payers
- 28 per cent for Higher Rate income tax payers.
- There are other rules and reliefs available, it's complex. Use this tool to figure it out:
However your question was how to reduce the tax paid…
You can defer a Capital Gain by reinvesting the gain in an Enterprise Investment Scheme (EIS). You can also get 50% CGT relief by reinvesting the gain in a Seed Enterprise Investment Scheme (SEIS).
These may not be suitable investments for your friend's circumstances – they tie up the money in illiquid investments that have to be kept for at least 3 years, and they invest in typically higher risk/reward early stage companies. They also have other tax reliefs too by the way (income tax rebate, and free from Inheritance Tax). I am not recommending them to you or any readers – do your own research – but they are popular ways to reinvest a capital gain to reduce the CGT payable.
More on EIS/SEIS tax reliefs:
Another tax liability you might need to think about is Inheritance Tax (IHT). I'm assuming your friend is planning on making these gifts while alive, however, IHT is not only payable on bequests when you die, it can also apply to gifts made if you then die within seven years.
This is a complex area so I am going to grossly oversimplify.
If the total value of the estate is less than £325,000, Inheritance Tax wouldn't apply as there is a Nil Rate Band up to this amount per individual.
The value of the share of the main residence sounds like it should be mostly covered by the new residential nil rate band (from 2020/21 this is £175,000).
After Capital Gains has been paid or deferred / taken care of, the amount in excess of £325,000 from the estate could be taxed at 40% if given on death or as gifts within seven years of death – so this might be a factor in the tax planning here.
Probably the most common way to not be liable for Inheritance Tax is to set up a trust: this involves setting up legal trusteeship of an asset (e.g. the money from the sale of the home) on behalf of someone else (i.e. the children). It's quite common to arrange things in this way for family gifts
There are other ways to safeguard assets from IHT, including investing in unlisted businesses, EIS / SEIS qualifying investments, AIM shares (which can be held in an ISA), etc. – but this sounds like it's beyond the scope of what you'd require. Please ask a separate question if you want answers on this.