Gifting, during your lifetime, can be a significantly tax efficient way of inheritance planning, but only if done correctly. Quite recently, HMRC stated that they have successfully clawed back £700m from incorrect IHT claims. One of the biggest traps that people regularly fall into is the “gift with reservation of benefit” rules (GWROB).
GWROB most frequently occurs when a parent gifts their home to their children but then continues to live in the property. Whilst the gift is potentially an exempt transfer 'PET' at point of gift, the house will fall into the parents death estate if they were still living in the property at the time of their death; this could potentially be subject to a 40% tax rate. Additionally, there could be double charge issues if the parent dies within 7 years of the gift.
There are some other little-known rules around pre-owned assets. An example of this would be, where cash is gifted to someone who then buys a property with the cash and lets the donor live in the property with no rental charge. The tax rules impose an income charge on the benefits received by the owner, so the market rental value would be declared as income on the donor’s tax return.
Tax efficient gifting can be complicated, however when done correctly it is a sensible way to plan for minimizing your IHT. Even if you were not necessarily planning your IHT but had just wanted to gift to members of your family you may well have unknowingly walked into one of the IHT rules. If you want to make a gift or you feel a transaction you have undertaken may be caught under these rules, then I can help make these compliant and efficient.
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