You’ve gifted your property to your Child, your Partner, your Niece, or your Nephew. But you’re still living in it.
That’s a problem.
This is one of the most common tax mistakes people make when gifting property — and it’s called a Gift With Reservation of Benefit.
Here’s what it means and how it affects Inheritance Tax.
What Is a Gift With Reservation of Benefit?
It’s when you give away an asset — usually a property — but continue to benefit from it.
Examples:
- You gift your house but still live there rent-free
- You gift a rental flat but still collect the income
- You give away a holiday home but still use it every summer
HMRC says: that’s not a real gift.
So for Inheritance Tax purposes, they treat the property as if you never gave it away.
The Consequences
Even if:
- The legal title is in someone else’s name
- You submitted a deed of gift
- No money changed hands
If you continue to benefit from the property:
- It stays in your estate for IHT
- You get no 7-year clock
- The gift has no effect on your estate’s value
We’ve covered the basics of gifting property — including CGT, IHT and timing rules — in our full guide with checklist: Gifting Your Home to a Family Member: What Are the Tax Implications?
👉 If you’re specifically looking at PETs and taper relief, this blog explains it in more detail: Can You Gift a Property to Your Children Tax-Free?
🎥 Not sure how CGT works on inherited property instead? Watch our video on CGT for inherited homes, the rules are very different.
How to Avoid This Mistake
If you want the gift to be effective for tax:
- Move out completely
- Or pay full market rent to the new owner (they must declare this as income)
Simply covering bills or contributing informally isn’t enough.
This applies whether you gift to:
- Your children
- An unmarried partner
- A sibling or other family member
Final Thoughts
Gifting property while continuing to benefit from it won’t reduce your Inheritance Tax bill.
In fact, it might leave your family with a surprise bill and confusion over who really owns the property.
📞 Thinking of gifting your home or another property? Book a clarity call to avoid this costly mistake.
In some cases, placing a property in trust might offer more control. Read our full guide on using trusts to weigh the pros and cons.