Reservations of Benefit

Gifts with Reservation of Benefit

Beware of gifting the house to your children without serious thought.

Transferring ownership of a family home to children whilst still living commonly comes up as an idea which individuals think will remove its value from their estate – and thereby perhaps protect it from needing to be sold later. However, as is always the way, things are not that straightforward. 

If you transferred ownership to someone else but then remained resident in the house ‘rent free’, the idea of this reducing the value of your estate would not work. Instead, the full value of the house would be transferred back into your estate on death, regardless of whether you managed to live seven years or not. 

That is because such a transfer is called a ‘Gift with reservation of benefit’. As you continued to benefit from the full value of the asset without any financial loss, it would not be deemed a Potentially Exempt Transfer (PET) and taper relief would therefore not apply – even though you had handed over the deeds. 

Your house can be transferred to the ownership of your children and its value benefit from taper relief – IF, you either move out or you pay the new owners a commercial rent for the remaining time you are resident. However, even for those willing to stay and pay the rent, a transfer like this comes with significant practical considerations – for example, one of your children being declared bankrupt or perhaps becoming subject to divorce proceedings might mean you have to move out anyway. 

There are a number of ways in which to reduce the impact of an Inheritance Tax bill on your beneficiaries without having to consider transfer of the family home whilst you still want to live there. If you think you have an issue, therefore, A&J Wealth Management can help make sure you are aware of all the options. 

This can help prevent you making a mistake that could cost your beneficiaries perhaps even more than you were originally trying to save. 

The Financial Conduct Authority does not regulate taxation and trust advice.

The information is based on our understanding of current HMRC tax rules applying for tax year 2023/24 which may be subject to future change. 

All information on this website is for information purposes only and should not be interpreted as providing individual financial advice. It is important you understand the full benefits and risks of potential decisions as they relate to your individual circumstances and you should seek professional, regulated financial advice before embarking on any course of action.

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© 2024 A&J WEALTH MANAGEMENT LTD A&J Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register, no 428590, at Registered in England, Company no: 5105933. Registered Head Office: Sawfords, Bigfrith Lane, Cookham Dean, Maidenhead, Berkshire SL6 9PH

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