What are the inheritance tax rules if I live in a home I plan to give away?

Unfortunately, anti-avoidance rules generally make this sort of planning ineffective for Inheritance Tax (IHT).

If you give the family home to your children, this is ordinarily classified as a potentially exempt transfer (PET) for IHT purposes. However, for a gift to qualify as a PET, the gift must come with no strings attached. This means you must not be able to benefit from the family home after you have made the transfer.

Because you intend to continue to live in the family home, HMRC will apply the Gift with Reservation of Benefit “GWROB” rule. This means the usual seven-year PET gift for IHT rule does not apply.

The point is, if you give something away but still benefit from it, it will count toward the value of your estate.

The GWROB rules do not affect Capital Gains Tax (CGT) so although for IHT the family home will remain in your estate it will, for CGT purposes, be owned by your children. Unless your children lived in the house during their ownership, they may be unable to claim relief from CGT if the property is eventually sold after your death, and a large CGT gain could crystallise on a future sale.

In addition to tax, there would be other issues to consider. For example, what should happen if your children decided to take possession of the house, or a future divorce threatened the family home?

You might want to consider other options such as selling your home and giving the money to your children, or you could reduce the value of your home through a mortgage (such as Equity release), and give away the proceeds. Professional advice should always be taken to make sure the best solution is found.

At TaxAssist Accountants, we can help you plan your estate and provide you with bespoke tax advice and financial planning to put the necessary steps in place. To find our more, click here to contact us today.

Date published 15 Feb 2023 | Last updated 20 Mar 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.