Inheritance Tax and gifts of property
If you are in the enviable position of owning and living in a property which is now mortgage-free, you may be thinking of gifting it to your next of kin as a way of reducing your Inheritance Tax liability.
You can of course gift your property if you are no longer living in it and in this instance, it will be formally classed as a gift and so will not be taken into consideration when your Inheritance Tax liability is calculated.
However, if you have already gifted your home yet continue to live in it without paying rent at the current market rate, you will be considered to be still benefitting from the property – called a “gift with reservation”. In cases such as this, the property although no longer technically yours, will still be classed as part of your Estate in the event of your death and so will be included in Inheritance Tax calculations.
It is therefore, more advisable to simply leave your home to your loved ones in your Will, rather than trying to minimise your Inheritance Tax liability by providing it as a gift.