If you give away an asset but continue to benefit from it, the 'Gift with Reservation of Benefit' rules may apply. This means the asset could still be treated as part of your estate for Inheritance Tax purposes.

The purpose of these rules is to prevent people from trying to reduce their Inheritance Tax (IHT) bill by 'gifting' away assets on paper while still enjoying the use of them.

What is a classic example?

The most common example is a parent who gives their main home to their children but continues to live in it rent-free. Even though they have legally transferred ownership, because they continue to benefit from the house (by living in it), HMRC will treat the house as if it is still part of the parent's estate when they die.

How to avoid the rule

To make a gift effective for IHT purposes, you must give it away completely and no longer benefit from it. In the property example, the parent would have to pay a full market-rate rent to their children to live in the house for it not to be considered a gift with reservation.

These rules are complex and are a key part of IHT planning.

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