Daniel Watson and Sophia Smout discuss gifts with reservation of benefit in Taxation

Daniel and Sophia’s article was published in Taxation, 24 October 2023, and can be found here.

Daniel Watson, Senior Associate and Sophia Smout, Associate in our Private Client department, explore the complexities of the “gift with reservation of benefit” (GROB) regime an area often misunderstood by those looking to reduce their inheritance tax (IHT) liability.

While gifting valuable assets such as land or personal belongings may seem like a straightforward way to reduce the size of a taxable estate, the GROB rules can undermine this strategy if the donor continues to benefit from the gifted asset. For example, gifting a home but continuing to live in it rent-free would trigger the GROB rules, meaning the asset remains part of the estate for IHT purposes.

They explain that for a gift to be effective for IHT mitigation, the donor must genuinely relinquish all benefit from the asset. Simply surviving seven years after making the gift is not enough if the donor retains any use or enjoyment of it. The article highlights the importance of careful planning and professional advice to avoid falling into this common trap, which can lead to unexpected tax liabilities and complications for beneficiaries. Daniel and Sophia emphasise that understanding the nuances of the GROB regime is essential for anyone considering lifetime gifts as part of their estate planning strategy.

Read the full article on the Taxation website [subscription required].