Main Residence Gifting

Normally by giving an asset away and retaining a benefit (as would be the case with the main residence, as the person lives in the house) would be a Gift with Reservation of Benefit. This would mean that from an IHT point of view, the house would still be in the estate, unless the full market rent has been paid, as above.

However, there is an exemption in law where the person making the gift (donor) and the recipient (donee) live in the same house.

• Gift of an ‘undivided share’. So either ‘solely’ owned or ‘tenants in common’. Not ‘joint‘.
• Donor and donee both ‘occupy‘ the land (e.g. it’s the family home).
• Donor does not receive any benefit at the expense of the donee.
• The exemption found at s102(B)(4) of the Finance Act 1986 states that as long as an ‘undivided share’ (that is, solely owned by the donor or a share held as tenants in common) is given away, it is not a Gift with Reservation of Benefit – so the seven year IHT clock can start and no rent has to be paid.
• This would be a Potentially Exempt Transfer (PET) so the gift starts the seven year clock.
• The donor must contribute at least the proportion of equity retained but can contribute more or all. The donee must not contribute any amount towards the outgoings over and above the equitable share held. This may be effective retrospectively if the historical facts support the arrangement.
• A specialist bespoke estate planning report would be required to evidence the work. We can produce this for the client.
• A conveyance is not always required between the individuals (or a Declaration of Trust over equity if there is a mortgage).
• Trust work is not possible (over and above any Declaration of Trust as regards the transfer of equity between donor and donee), as the gift must vest absolutely in the recipient’s estate.
• The gifted share would be in the estate of the donee from day one.
• The gift would remain in the donor’s estate for seven years as a PET.

If you would like to see if you qualify please complete the survey below anda. specialist advisor will get in touch to go through the finer details.