We are often asked by clients “How can I reduce my death estate by utilising the value of my family home?”   You may have heard about the rules of “Gifts with Reservation of Benefit” (GWROB), but do you know how it works? How does it affect your estate position?

Gift with Reservation of Benefit

Usually, if a donor gives an asset away to another individual (this also applies if the family home is transferred into a trust), it will be a potentially exempt transfer (PET) so long as the donor survives seven years, it will fall out of the donor’s death estate for IHT purposes. The beneficiaries of the donor’s estate therefore saves IHT at a maximum rate of tax at 40% as a result of the gift.

The GWROB anti-avoidance rules were introduced to target where a donor gives away their family home to their children but do not want to move out of the house or give away any of the benefits of owning the family home. From an IHT perspective, the family home will still form a part of the donor’s estate at the date of death.

In addition, if the donor releases the reservation sometime after the initial gift (say they move into a nursing home), this will be treated as a second “deemed potential exempt transfer” at this date.  This second PET would not qualify for the annual exemption to reduce the gift value but will outside the donor’s estate at death.

Double IHT charges

There might be a double charge where an individual has made a GWROB within seven years of death, so that both the gift itself and deemed ownership of the asset at death are liable to IHT.

Avoid falling into the anti-avoidance legislation by

  • Pay Market value rent to the donee to live in the house.
  • Gifting only a share of the house.
  • To prove that the use of gifted house by donor is not “significant”.

Contract us if you wish to discuss above further or would like to explore any Inheritance tax planning which can be beneficial.

Related posts

Leave a Comment