Are there tax implications for making gifts?

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When making a gift to another person of money, property, or an item of value, it is especially important to be aware of the tax implications and the rules that govern how that gift is treated.

What is a gift with reservation of benefit (GROB)?

A gift with reservation of benefit is where a person transfers ownership of an asset to a beneficiary but continues to receive the benefit from that asset.

For example, if a parent transfers their house into their children’s name and continue to live there, this would be classed as a gift with reservation of benefit, unless this was a commercial transaction where the parent was paying the full market rent to the children.

If you gave away your house but continued to receive the benefit of it by living there up until death, the value of the house will still be included as part of your Estate, regardless of whether or not you survive seven years from the date of the gift. For inheritance tax purposes, it would not matter whether the house may have been transferred years ago. It would be treated as if the person had never made the gift and had still owned the house when they died.

Another example of a gift with reservation of benefit is if a person gives their child a shareholding but continues to receive the dividends. The shareholding would still be included as part of that person’s estate.

Gifts with reservation of benefit rules also apply to properties owned abroad. For example, if a person who is domiciled in the UK gifts a foreign property to their child but continues to use it as a holiday home free of charge, the foreign property will be treated as if that person still owned the property when they die.

When does it stop being a gift with reservation of benefit?

A gift with Reservation of Benefit ceases to be such a gift only if the person stops enjoying the benefit of the asset or starts to make valuable payment for this asset. It is only at this point the person will be treated as making a potentially exempt transfer. For example, if John gave his house to his son in 1998, but only moved out in 2018 so his son could occupy the property, the gift of the property will be treated as having been made in 2018.

If you would like advice on making gifts during your lifetime and the implications of making such gifts, please contact us on 01279 295047 and we will be very happy to help you.

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