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Find out more'Does my father need to pay me rent?'
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My father gave outright gifts to me and my brother prior to 2013, and we bought a house for him with the proceeds.
He has been paying a market rent to us ever since.
However, some information we’ve read suggests that as it’s been more than seven years since we bought the house, he might be able to stop paying the rent. Is this true?
A Which? Money member
'You've been caught between two inheritance tax rules'
Mike Croxford, Which? money expert, says…
The key to answering your question is the ‘gift with reservation of benefit’ rules.
Broadly speaking, these mean if someone gives away an asset but continues to benefit from that asset then the full value of the gift would still count towards the value of the estate.
This could potentially result in unexpected inheritance tax charges. In your case, you have taken the correct steps in having your father pay rent at a market level.
If someone gives away an asset but continues to benefit from that asset then its full value of still counts for inheritance tax
However, HMRC stipulates that market rent must continue to be paid on an ongoing basis otherwise the house will be treated as belonging to your father.
You may be thinking of ‘potentially exempt transfer’ rules.
This allows you to give away unlimited amounts without your estate owing inheritance tax on it, providing the gift was made more than seven years before your death. But gifts with reservations are treated differently.
- Find out more: Inheritance tax on property
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