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David’s Case: Inheritance Tax

22 Jan 2022

David owns the residential home he lives. David was under the impression  that if decides to gift his whole house to his two children. he could continue to live in the house rent-free.

Unfortunately this is not the case.  The gift will be caught by the Gifts with R reservation of Benefit rules. This means that for Inheritance Tax it would be counted as part of David’s estate when he dies.  The reason for this is David although he made a valid gift legally however he has reserved the use of the assets by continuing to live  in the property rent-free.

If David had instead agreed to and commenced paying market value rent on the property to his two children after making the gift then it would be treated as a potentially exempt transfer and if he lived 7 years after making the transfer it would not count as part of David’s estate on his death.