Legal Articles

Retaining an interest in gifted property

Home / Knowledge base / Retaining an interest in gifted property

Posted by Eamonn Daly on 05 April 2017

Eamonn Daly - Tax Adviser
Eamonn Daly Partner

Inheritance tax and gifts with reservation of benefit

If someone makes a gift of an asset during their lifetime but continues to derive benefit from it (for instance if a parent gifts their house to a child but continues to live in it) or if the recipient of the gift does not enjoy possession of the gift, then it will be a gift with reservation of benefit (GROB).

In such circumstances, the property subject to a reservation is treated as still owned by the donor, and so remains part of their estate for inheritance tax (IHT) purposes.


There are some exceptions to the GROB rules in respect of land.

Where there is gift of an undivided share of an interest in land (that is of a share where the land is owned by the donor with another or others as tenants in common, for example where a husband and wife each own a 50% interest in the land rather than the whole land jointly) and a benefit is retained by the donor, then the GROB rules will apply as normal unless:

  • the donor occupies the land to the exclusion of the donee in return for a market rent; or

  • the donor and the donee occupy the land together and the donor does not receive any significant additional benefit (for example where a parent gives half of their house to their child who still lives at the property with them); or

  • the donor does not occupy the land (for example because the land is rented out).

Inheritance tax planning

The last exception mentioned above is particularly useful and could enable an individual to make a gift of a share of a rental property, usually to a trust, and still retain the right to the relevant share of the rental income from it without the gift being a GROB.

The share of the property gifted would not be subject to IHT in due course so long as the donor survives for seven years from the date of the gift.


There are some useful exceptions to the GROB rules where land is owned as tenants in common (and each person consequently owns a separate share of the property). It is, however, important to note the following:

  • the exceptions remain subject to the donor surviving seven years from the date of the gift. It is therefore important for a donor to consider any tax planning as early as possible whilst ensuring they have sufficient resources to make the gift.

  • tax legislation is constantly changing and evolving so there is no guarantee that the current exceptions will not be affected by a future change in the law.

  • where a gift of a share of property is made and its value has increased over and above the original purchase price, such a gain will be liable for capital gains tax (CGT) unless the property has been the donor’s main residence throughout their ownership of it.

The planning relating to a gift of a share of a property not occupied by the donor might therefore only be appropriate where the gains are covered by their CGT allowance or where the potential CGT liability is manageable.

About the author

Eamonn specialises in tax, estate planning and trust advice for individuals and families.

Eamonn Daly

Eamonn specialises in tax, estate planning and trust advice for individuals and families.

Recent articles

30 July 2020 Rethinking the landlord / tenant relationship

We have been following the travails of the high street for over 12 months where changing shopping habits, business rates and rent increases have been contributing to a growing strain on many landlord / tenant relationships. The Covid-19 pandemic has not only turned a bad situation critical for many retailers and hospitality venues but has also turned the spotlight on the wider commercial sector too. Almost all businesses operating across the country have suffered financially to a greater or lesser extent as result of the economic downturn precipitated by the imposition of lockdown in March.

Read article
30 July 2020 Bankrupts fail in claim to have interests in land revested in them

The claim by Mr and Mrs Brake (Brake v Swift), heard in the High Court in May, to have a cottage and adjacent land revested in them under Section 283A of the Insolvency Act 1986, was set against a background of convoluted litigation extending over a number of years, described by Matthews HHJ as ‘complex’. The claimants had been made bankrupt in 2015 and the matter before the Court concentrated on whether or not the property concerned was, indeed, the claimants’ principal residence at the time of the bankruptcy.

Read article
29 July 2020 Remote witnessing of wills – a sign of the times

The law governing how a will is witnessed dates back to 1837 and for good reason. The requirement for two people (neither of whom can inherit from the will they are witnessing) to be physically present at the signing of a will is designed to, among other things, prevent fraud and the exercise of undue influence. That is, until the Covid-19 pandemic struck.

Read article
How can we help?
01926 732512