Published on: 7th March 2022

What is a Gift with Reservation of Benefit

One estate planning method that many people attempt to use to try to save Inheritance Tax (IHT) is making a gift to a child or loved one and surviving the gift by seven years. This tactic is allowed by law and whilst it can be used beneficially, there are significant caveats to be cautious of.

If you make a gift and ‘reserve a benefit’ in it, it will form part of the value of your estate for IHT purposes. ‘Reserving a benefit’ means that the donor does not genuinely give away all rewards and benefits from the asset that has been gifted. For example, parents will often consider gifting their property to their child(ren), but if they continue to live in the property, they are retaining a benefit and the value of the property will continue to form part of their estate valuation.

There are exceptions to this rule, but you must be very cautious and seek professional advice when deciding if you want to proceed with a large gift. Some of these exceptions include paying rent at the market rate or gifting only a percentage of your share to a child who resides in the property as well. Even with these exceptions, there are challenges and complexities such as your child needing to pay additional income tax if you pay them rent or the reservation of benefit returning if the child decides to move out. Due to these complexities and issues with gifts with reservation of benefit, we only advise this type of gifting in certain circumstances. Alternatively, we have other Estate Planning options that can help in numerous situations.

Additionally, if you gift your property to a child, it will likely be regarded as a ‘deliberate deprivation of assets' and the value would still be assessable by the local authority to pay for care fees. With the careful use of trusts, however, there is the ability to help protect assets from care fees assessments. Casey & Associates has provided bespoke Estate Planning for thousands of clients and has helped many to create plans focused on the protection and retention of their assets. Whilst these tools would not necessarily help for IHT purposes, they are regularly used as a method to protect assets which is regularly a major reason for a parent wanting to gift their property to their child(ren).

If you would like to discuss your current estate planning and receive advice on IHT and protection from care fees, please consider booking a no-obligation appointment with one of our Consultants. To do so, please call 01732 868190 or use our online form by clicking here.

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If you wish to give instructions or require general information about our Wills, Lasting Powers of Attorney, or Trusts then we will carry out a telephone or Zoom appointment. However, if you wish to give instructions to one of our Consultants and you feel that you can only do this at a Face to Face meeting we are offering, at our Consultant’s discretion, a limited number of Face to Face appointments in most of the areas we normally cover (subject to Government advice). To see the areas we normally cover please click here. To arrange an appointment please telephone 01732 868190 or click here.

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