Thinking about gifting the family home? Why taking specialist advice is so crucial

It might seem a tempting idea to avoid inheritance tax – hand over the family home to your children but continue living there. What could possibly go wrong?

The answer is a lot, as one elderly woman who didn’t follow the complicated legal rules on gifting found out to her cost when she was evicted from the home she’d lived in for 40 years.

The case shows the importance of taking independent legal and financial advice for your own circumstances before trying to use gifting, particularly transferring an asset to a family member, as part of your tax planning strategy.

What happened in this ‘gifting gone wrong’ case?

Norma Gibbons and her daughter Dawn lived in the same house in London which had been converted into two flats.

Norma lived upstairs and in 2004 transferred her flat into her daughter’s name, without telling her, in a bid to avoid inheritance tax (IHT). She also transferred the freehold title, which had been in both their names, to Dawn.

When they fell out a few years later, Norma began refusing Dawn access to the flat even when it needed urgent repairs.

Eventually, after Norma defied multiple court orders to allow access, Dawn issued an eviction notice which her mother refused to comply with.

The sad dispute eventually ended up in court with Norma’s lawyers claiming she’d been tricked into making the gift to Dawn, an argument rejected by the judge.

He ordered Norma to move out and pay £10,000 costs.

How can you make sure you avoid a gifting mistake?

Whilst the unhappy case of Norma and Dawn Gibbons may be an unusual one, it highlights the risks of transferring property to a relative.

It would appear that Norma was not properly advised on the legal and tax factors running alongside the family considerations of her decision. This meant that once mother and daughter fell out, the whole arrangement failed.

With property prices remaining high, there is no doubt that many parents still think they can gift the family home to their children whilst continuing to live there as a way of reducing their IHT bill.

However, it is rarely an effective IHT planning tool. This is because signing over your home whilst staying put is known as a ‘gift with reservation of benefit’ which can still have IHT consequences.

This is because if you make a gift but retain the benefit (of living in the property rent free), the gift will still form part of your estate for IHT purposes after you die.

One possible solution is to pay the full market rent to your children with a lease or tenancy in place with regular rent reviews while you continue to live there.

Get in touch

There are ways to make valid gifts for IHT purposes but it is a complex area of the law and specialist legal advice is vital to review your assets and come up with a plan that safeguards your future.

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