How can I avoid or reduce capital gains tax (CGT) when gifting mortgaged rental property to my son, who will live in it as his principal private residence, and another property to my daughter, who will rent it out? 

Arthur Weller replies:  

If you read HMRC’s Capital Gains manual at CG14480P, it states that when you transfer property to your children, you are deemed for CGT purposes to transfer at present market value. Most likely, that will trigger CGT. You could try transferring a bit each year between you and your spouse (if that is applicable) using your CGT annual exemption (currently £12,300), but this is not really a practical solution. You could transfer to a trust, wait three months, and then transfer the trust to your children. However: (a) this requires professional guidance; and (b) it will clash with the possibility of claiming principal private residence relief, so it is not useful for your son.