MHA | Can I gift my house to save on Inheritance Tax?

Can I gift my house to save on Inheritance Tax?

Evie Procter · August 9th 2023 · read

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Recently it has been in the news that an 82-year-old women was evicted from her home, by her daughter, due to gifting it to her a number of years ago to save inheritance tax.

In summary, the mother gifted her home of 40 years, worth £1.4m, to her daughter and stated that she made the gift for tax planning reasons to avoid inheritance tax.

The mother continued to live in the flat as she always had. A couple of years after the gift, the mother and daughter’s relationship broke down and as the daughter owned the home she lived in, the daughter was able to evict her.

The news articles focus on the moral side of the situation as opposed to whether the inheritance tax planning undertaken served its purpose.

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How can you gift an asset to save on inheritance tax?

Normally, when an individual gifts an asset to another individual, it is a Potentially Exempt Transfer (“PET”) for inheritance tax purposes. A PET does not trigger an inheritance tax charge when it is made but it may become chargeable should the transferor dies within the following seven years.

However, when an individual gifts an asset but continues to enjoy the benefit of that asset as they always have, there are anti-avoidance provisions called “gifts with reservation of benefits”. These provisions state that where the transferor can still benefit from the gifted asset, then the asset remains in their estate and will be subject to inheritance tax upon death.

This means that the original gift is deemed ineffective for IHT purposes.


In this situation, as the mother continued to live in the home, these provisions would apply and the home worth £1.4m would have been subject to 40% inheritance tax on death.

The gift becomes a Potentially Exempt Transfer at the date of the eviction as she no longer benefits from that property. The mother would then need to live for seven years following the eviction for the property to be outside of her estate.

For the original gift to be effective for inheritance tax reasons, the mother would have had to pay her daughter full market value rent for the use of her home.

Ultimately, the 82-year-old women’s motive for gifting her home was to avoid paying inheritance tax, which unfortunately this planning did not achieve, unless, of course, she was paying a market rent to her daughter to live in the property.

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A PET does not trigger an inheritance tax charge when it is made but it may become chargeable should the transferor dies within the following seven years.

MHA Tax Advisory Client Manager Evie Procter

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