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IHT – Giving away your home before you die

23 November 2023

Lifetime gifts, including homes, are often tax-free as 'potentially exempt transfers' (PETs). Inheritance Tax (IHT) exemption requires the donor's seven-year survival. HMRC outlines conditions for continued residence; however, 'enjoyment' may trigger IHT even after seven years.

The majority of gifts made during a person’s life, including gifting a home, aren’t subject to tax when gifted. These lifetime transfers are known as ‘potentially exempt transfers‘ or ‘PETs’. These gifts or transfers achieve their potential of becoming 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 dies between three and seven years after the gift is made.

HMRC’s guidance suggests that if the person gifting the home wants to continue living in the property after giving it away, they need 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, the taxman 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 taxpayer dies more than 7 years after the transfer.

Source: HM Revenue & Customs Tue, 21 Nov 2023 00:00:00 +0100

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