Home > Inheritance Tax > Inheritance Gifts with Reservation of Benefit

Inheritance Gifts with Reservation of Benefit

By: Mike Watson - Updated: 13 Aug 2010 | comments*Discuss
 
Gifts With Reservation Of Benefit Tax

Whilst it is possible to avoid paying Inheritance Tax on property or other items by giving them as gifts under the Seven Year Rule (whereby if you do not pass away within seven years the item will become exempt from Inheritance Tax) with a but of luck, not all gifts will be exempt from tax. It is important to be clear on this before you make a gift with the intention of retaining that full gifts value for the recipient.

Gifts with Reservation of Benefit

A gift with reservation of benefit is one where the person who donates the gift still retains (or reserves – i.e. the ‘reservation’) some benefit in relation to the gift.

For example, in perhaps the most common scenario you may give your house away but continue to live in it rent free. In this case the house will still be liable for taxation as part of your estate. However, if you were to start paying rent at a later date the terms of the Seven Year Rule would apply from that date. This means that with some shrewd guess work, and providing you are not hit by a bus you could take advantage of this rule – but the advantage would be minimal and not worth counting on!

In another scenario you may initially pay rent, but then stop paying. In this case the reservation period would start when you had ceased to pay rent and all possible tax exemptions under the Seven Year Rule would thus be lost.

In the case that a house is given away and the Seven Year Rule applies rough guidelines exist to ensure that the donor does not enjoy reservation of benefit. These guidelines are only approximate and ensure, for instance, that the donor does not stay in the house for more than two weeks in a year whilst the new owner is absent, or for more than a month whilst the new owner was there, and does not visit socially more than can usually be deemed reasonable. Of course, in the case tat a relative has donated the house to another relative these guidelines may seem difficult to follow to the letter, which is why they are flexible - each case being judged on its own merits.

Other gifts that may be subject to the Reservation of Benefit include cars that might be used to ferry the donor around ‘every day’. In this case, of course, from the point at which the donor stopped taking advantage of the car (and the new owners goodwill!) the Seven Year Rule would begin to be applied.

It is understood that when land is donated the donor may be interested in the welfare of that land and its uses for the rest of their life. They may also take infrequent walks on that land.

In short, one must be aware when giving away property that the Seven Year Rule may not be taken advantage of if one wishes to continue using that property. Clearly this is a rule to prevent people otherwise taking advantage of a tax avoiding loophole.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Francis
    Re: Money Owed to and by the Deceased
    Afriend of mine lend me money a month ago.He suddenly died a few days ago.Do I still need to pay the money back.Ther was no…
    16 July 2018
  • Nat
    Re: Money Owed to and by the Deceased
    A friend lent me £10,000 we wrote something down ourselves and I signed and dated it. I would pay him monthly. He died…
    12 July 2018
  • VivK
    Re: Will Inheritance Affect My Council Tenancy?
    I have just inherited a bungalow in a different county from where I live and work. Will I be able to sell this…
    13 June 2018
  • InheritanceIssues
    Re: Money Owed to and by the Deceased
    Tutti - Your Question:Hi my friend gave me £20,000 and didn’t want me to pay her back however I insisted I made payments.…
    16 May 2018
  • Tutti
    Re: Money Owed to and by the Deceased
    Hi my friend gave me £20,000 and didn’t want me to pay her back however I insisted I made payments. She made a will and told…
    15 May 2018
  • Loanandinhertitance
    Re: Money Owed to and by the Deceased
    mother and father put a £40000 loan on the house they transferred/sold to brother. This was done formally in writing to be…
    27 March 2018
  • InheritanceIssues
    Re: Money Owed to and by the Deceased
    Alice Yelland - Your Question:My godfather wants to loan me £30,000, at a low interest rate of 1% per annum. He is elderly,…
    20 March 2018
  • Alice Yelland
    Re: Money Owed to and by the Deceased
    My godfather wants to loan me £30,000, at a low interest rate of 1% per annum. He is elderly, so what happens when he dies?…
    18 March 2018
  • Bishop
    Re: Money Owed to and by the Deceased
    I was wondering what would be the best way to find out if someone (individual or company) has taken, claimed or received…
    15 February 2018
  • InheritanceIssues
    Re: Money Owed to and by the Deceased
    RASH - Your Question:I gave my mother nearly £25,000 about 20 years ago to buy a share in her flat. Now she has died how do…
    20 December 2017