3 comments on “Inheritance Tax – Gifts with reservation

  1. I have a question.

    Scenario. Mother and father own a property as joint tenants which is mortgage free and worth £450K. Son and disable daughter also live in the same property and mother is legal carer for daughter. Both parents are looking to gift each of their share of the property to the son. Since the property is valued at £450K that means each parent owns a share worth £225K. If the property is gifted to the son and the parents as well as the son continue to live in the property same as before, would this fall under the GWR rules even though mother and fathers individual share of the property is less than the £325K IHT threshold? If by them continuing to live in the property does fall under the GWR rule even though their individual share of the property is less than the IHT threshold, how is the market value rent calculated with the son (who now is the legal owner) is living there as well?

  2. I have a question.
    Scenario: Father has an estate comprising £1million in cash plus £1million property (full market value). Father gifts £1million cash to son. Son uses cash to buy house at full market value. Father gifts £1million cash received from sale of house to son. No IHT if father survives seven years. Father lives in the property rent-free. Will the GWR rules be successfully avoided on the basis that the son bought the property, rather than receiving it as a gift?

    • Hi James

      The gift of £1m cash to son will be a PET and provided Dad survives for 7 years the cash will not form part of Dad’s estate for IHT purposes.

      If Dad sells the property for £1m and gifts the cash to his son who purchases a property for Dad to live in rent free, this may be outside of the GWR rules for IHT. However there may be an income tax charge under the Pre-owned Asset rules if Dad does not pay a market value rent.

      http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM44001.htm

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