- Written by
- Lee Ann Diaz, Associate Solicitor
Many estates are falling foul of the Gift with Reservation of Benefit (“GROB” or “GWRB”) rules which is contributing to HMRC’s receipt of IHT (“Inheritance Tax”) reaching record levels this financial year. In the month of April 2023 alone, HMRC reported £600m of IHT paid which was a 100% increase on its intake just three years earlier in April 2020.
What is GROB?
A GROB is a gift of the whole, or part, of an asset by a donor (giver) to a donee (receiver) whilst the donor retains some benefit in or from the asset. A common example is where a parent gives their home to their child or children but continues to live in it, hoping that the value of the home will thereby not be included in their estate for IHT purposes. According to the Inheritance Tax Manual (IHTM14301) where an individual gifts an interest in a property on or after 18 March 1986 a reservation of benefit will arise where either:
- the donee does not receive control and enjoyment of the property, or
- the gifted property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise at any time between the date of death and seven years prior (or between the date of death and the date of the gift if this is less than seven years).
The facts of a recent case that I had dealings with is a common one where the GROB rules are breached. The executors instructed me to deal with their parents’ probate. However, years before, the parents had unfortunately followed the advice of a will writing company regarding their property, which negatively affected their estates for IHT purposes when they died.
Mr and Mrs jointly owned their residential home. Following advice from a will writer, they gave 50% of their respective shares into lifetime trusts so that Mr owned 25%, Mrs owned 25%, Mrs’ trust owned 25% and Mr’s trust owned the remaining 25%. However, they continued to live in their home without paying any rent to the trusts for the use of the 25% shares that each trust owned. Three years later Mr and Mrs died. Their estates were treated for IHT purposes as if they still owned the value of the gifts they had made to their trusts, and IHT was still payable. In addition, the Trusts could also have been liable to pay Capital Gains Tax on the increase in value in the years since the transfers in to the Trusts took place. This ultimately defeated the point of the gifts and the cost of setting up the trusts in the first place!
We Can Help
Are you considering making a gift of property or other assets to a family member or friend, perhaps to reduce the value of your estate for IHT purposes? Understandably, most people are conscious of their estate’s exposure to IHT but, without seeking professional advice to navigate the complex IHT rules, it is easy to make costly mistakes.
Should you require any further information on Inheritance Tax and lifetime gifting, please contact a member of our Private Client team on 020 8290 0440 who will be happy to advise you.
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