Inheritance Tax – what you need to know

Industry News - 19th December 2023

The majority of gifts made during a person’s life, including gifting a home, are not subject to tax at the time of the gift. These lifetime transfers are known as ‘potentially exempt transfers’ or ‘PETs’.

These gifts or transfers will be exempt from Inheritance Tax (IHT) if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor passes away between three and seven years after the gift is made.

If a person gifts a home and wants to continue living in the property after giving it away, they need to follow HMRC’s guidance to:

  • pay rent to the new owner at the going rate (for similar local rental properties) 
  • pay their share of the bills and 
  • live there for at least 7 years. 

However, the rules are different if the person making the gift retains some ‘enjoyment’ of the gift made. This could apply if a person gave their home to their children but continued to live in the home rent-free. Under these circumstances, HMRC would contend that the gift falls under the heading of a gift with reservation of benefit and the ‘gift’ would remain subject to IHT, even if the donor passes away more than seven years after the transfer. If you have any questions on Inheritance Tax, please contact us.

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