We explain a tricky tax trap that often surprises homeowners. Many think they can pass assets on and still use them. HMRC looks closely at any transfer where the giver keeps the use or enjoyment.
In plain terms: if you hand over your house but still live there rent-free, that transfer can stay liable for inheritance tax and affect IHT treatment. We will show how the seven-year countdown can fail to remove the charge.
This guide is for UK homeowners aged 45–75 who want sensible estate planning. We outline common triggers, practical alternatives such as paying market rent, and when to seek specialist advice.
We use clear examples, not legal jargon. Our aim is to protect family wealth while keeping options open.
Key Takeaways
- Keeping use after a transfer can keep the asset in the estate for inheritance tax.
- The seven-year timeline may not apply if enjoyment continues.
- Paying market rent or changing arrangements can avoid unintended tax charges.
- Early planning helps limit IHT exposure on an estate.
- Seek specialist advice for tailored, compliant solutions.
What a gift with reservation of benefit means for UK inheritance tax
Many homeowners assume handing over an asset ends their tax exposure; that is not always true.
In plain English, GWROB means you transfer ownership but keep the enjoyment. That enjoyment can be obvious — living in a house — or subtle, like keeping income or occasional use.
Legally, the test sits in Section 102 of the Finance Act 1986. HMRC look at who really enjoys the property. If the donor still uses, occupies or receives income, the transfer can stay chargeable for IHT.
We simplify the HMRC terms so they make sense:
- Donor — the person who parts with legal title.
- Donee — the person who receives the asset.
- Possession and occupation — who lives in or controls the property day-to-day.
The test is factual, not formal. Paperwork calling something a gift does not decide matters. What matters is who enjoys the asset in practice.
| Concept | Plain meaning | Impact for IHT |
|---|---|---|
| Enjoyment | Use, occupation, or income | May keep value in donor’s estate |
| Donor vs Donee | Who actually lives in or benefits | Controls whether transfer is treated as effective |
| Legal test | Section 102, Finance Act 1986 | Determines GWROB treatment |
gift with reservation of benefit rules explained uk
Handing legal title away does not always end tax exposure if someone keeps using the asset.
When HMRC say a transfer has not “truly left” your estate
HMRC look at who actually enjoys the property. If the donor still occupies, receives income or uses the asset, HMRC treat the value as staying in the estate.
That means paperwork alone rarely wins the case. The test is factual: who benefits in daily life matters more than the document name.
Why relationship, intention and the passage of years do not usually change the outcome
Being related to the recipient or acting with good intentions does not alter the tax test. HMRC focus on the retained benefit, not motive.
Time also offers limited comfort. Ten, fifteen or twenty years can pass and the value may still be included while enjoyment continues.
- Common trouble spots: living rent-free after transfer, keeping income streams, or informal use arrangements.
- Practical consequence: your estate can include the market value despite legal title changing long ago.
- Warning sign: any ongoing use, however occasional, that is not documented and charged at market rates.
How GWROB interacts with potentially exempt transfers and the seven-year rule
We start by explaining the basic picture. A potentially exempt transfer, or PET, is a lifetime transfer that becomes free of IHT if the donor survives seven years from the relevant date.
But, if the donor keeps using the asset, the seven‑year clock does not run properly.
When a PET begins and why it can pause
Normally, a lifetime transfer is treated as a PET on the transfer date. If the donor survives seven years from that date, the value falls outside the estate.
However, retained use stops that timeline. HMRC treats the transfer as still in the estate while enjoyment continues.
The “new gift” date when the use ends
When the donor finally stops using the asset, that cessation is treated as a fresh transfer date. In plain terms, the PET restarts on the later date.
Taper relief and timing if death follows soon after
If death occurs within seven years of the relevant date, taper relief may reduce the IHT payable. The crucial point is the date that counts is the date the use ended, not necessarily the original transfer date.
- Key actions: record exact dates of transfer and of any change in occupation or use.
- Keep clear paperwork so the relevant date is easy to evidence in any enquiry.
Typical situations that trigger a reservation of benefit
Everyday choices about property and income can surprisingly keep assets inside your estate for tax purposes. We list the real-life examples we see most often.
Family home kept after transfer. Handing a home to children but carrying on living there rent-free is the commonest trigger. Even occasional unpaid occupation can look like retained enjoyment.
Income-producing assets. Giving shares while continuing to take dividends counts as retained income. That ongoing payment is likely to draw HMRC attention.
- Let property and business interests: retaining rental income or ongoing fees can keep the asset in the donor’s estate.
- Everyday items: cars or classic vehicles that are still borrowed, insured or stored for the original owner can create problems.
- Intangibles: intellectual property that still produces royalties is treated as enjoyment and may be taxable.
Small changes in who receives income, who occupies or who controls access often decide the outcome. For practical guidance on lifetime transfers, see our piece on inheritance tax free gifts.
The tax impact: how GWROB can keep value in your death estate
Retained use can pull the full market value back into a person’s estate for inheritance tax purposes. That means a transfer that felt final can still count when you die.
Full market value dragged back for IHT
If someone keeps living in or taking income from an asset, HMRC can treat the full market value as part of the death estate. The practical result is a tax bill based on current value, not the earlier transfer price.
The double charge risk
When death occurs within seven years, two routes can apply: death estate rules and a failed pet treatment. HMRC will use the method that produces the highest tax take.
“Paperwork alone rarely wins — enjoyment in practice decides tax outcome.”
- Key point: a 40% inheritance tax charge can apply even years after a transfer if use never stopped.
- Executors face uncertainty and extra work when value is pulled back into the estate.
Bottom line: half‑measures risk significant tax. We recommend clear, documented steps or specialist advice before you act.
How to avoid GWROB while still planning your estate
We outline a clear, practical route to keep your planning safe while you continue to live at home.
Pay full market rent for continued occupation. The cleanest route is to charge proper market rent and show you really pay it. That means a written tenancy or licence, regular payments into the recipient’s account, and market reviews at sensible intervals.
Making rent work in practice
Documentation matters. Use a formal agreement, bank records and periodic rent reviews. State a clear intent to pay in perpetuity, not just for seven years.
Tax and compliance for the recipient
The recipient must include rental income on self-assessment returns. That income can affect their tax position and may push them into a higher band.
On sale, the recipient may face capital gains tax if the home is not their main residence. Growth after the transfer can create a CGT bill.
Practical landlord obligations
- Gas safety certificate and electrical tests
- Valid EPC and building/landlord insurance
- Routine maintenance and repairs
Alternatives and limited occupation
Where ongoing use is truly minor, HMRC can accept the donor is virtually excluded. Examples that often pass muster include short stays for social visits, brief stays during house repairs, or medical visits kept to a modest number of nights per year.
| Action | Why it helps | Evidence needed | Tax effect |
|---|---|---|---|
| Pay full market rent | Shows commercial arrangement | Tenancy, bank payments, market reviews | Reduces GWROB risk; rental taxed to recipient |
| Document short stays | Shows use is insignificant | Visitor logs, dates, purpose | May avoid GWROB if truly limited |
| Recipient reports income | Complies with income tax rules | Self-assessment entries, receipts | Ensures transparency to HMRC |
| Prepare for CGT | Recognises future sale risk | Valuations, ownership records | Recipient may face CGT if not main home |
If the rules already apply: what changes can and cannot fix
We often see families assume that stopping occupation or income today erases earlier treatment. That is not the case. Historic retention still matters for the period when the donor enjoyed the asset.
Why simply stopping the use now does not rewrite history
Stopping the use does not undo past treatment. Any period during which the donor retained enjoyment remains relevant to HMRC’s assessment. Simply moving out today cannot erase the fact that the donor benefited previously.
How HMRC treat the end of enjoyment as a fresh transfer
When the use genuinely stops, HMRC treats that cessation as a new transfer date. From that date a fresh potentially exempt transfer (PET) can begin. The seven-year clock runs from the cessation date, not from the original transfer.
- Moving out completely — the relevant date is the day occupation ends and a new PET may start.
- Paying proper market rent — if full commercial rent begins and is evidenced, the donor’s retained enjoyment can end.
- Giving up an income stream — formally stopping payments creates a fresh transfer event for PET timing.
Evidence is decisive. Bank records, revised tenancy agreements, insurance changes and occupancy logs show the change in practice. Half-steps — sporadic payments or informal stays — often keep the reservation alive in HMRC’s view.
“Act early: the sooner the benefit truly stops, the sooner your planning has a chance to work.”
GWROB vs pre-owned asset tax: avoiding one trap without falling into another
Many families try to fix one tax exposure and, unknowingly, trigger another. We explain how two different regimes apply and what that means for your planning.
Different taxes, different legislation
GWROB sits under the Finance Act 1986 and targets inheritance tax. POAT comes from the Finance Act 2004 and is an income tax charge.
How cash planning can trigger POAT
Selling an asset and gifting cash for a child to buy a home you then occupy can avoid a direct reservation test. But HMRC can assess a POAT charge instead.
POAT valuation often uses a market rent figure or a flat percentage of capital value (commonly around 5%). That creates an annual taxable benefit based on the assessed value.
| Aspect | GWROB (IHT) | POAT (Income tax) |
|---|---|---|
| Main law | Finance Act 1986 | Finance Act 2004 |
| Trigger | Donor keeps use after transfer | Cash or arrangements that give continued use |
| How HMRC values it | Full market value dragged into estate | Market rent or % of capital value (approx 5%) |
| Practical choice | Cease use or charge full market rent | Restructure or elect into IHT where sensible |
Options are simple: stop occupying, document a commercial tenancy and pay proper rent, or restructure ownership. In some cases an election into inheritance tax treatment is the cleaner route.
We recommend joined‑up planning. Treat both regimes together, not one at a time. For wider traps and practical examples, see our overview on common tax traps and guidance for single owners on inheritance planning.
Trusts, excluded property and the shifting UK landscape from April 2025
Trusts can seem helpful, but they can also create hidden tax exposure when the settlor still benefits.
How GWROB can arise through settlor-interested trusts.
If a settlor keeps any practical link to a trust — access, income or power to regain assets — HMRC can treat that link as a reservation. That can pull trust value back into the donor’s estate for inheritance tax and stop the trust behaving as a clean separation.
Excluded property today.
Non-UK situs assets settled by someone not UK-domiciled have often sat outside inheritance tax. This can still matter for older structures but political change makes certainty less clear.
The government proposes a 10-year residence test and a 10-year tail after leaving. That brings worldwide assets into scope after long residence and can affect trusts across settlement, 10-year anniversaries and distributions.
| Scenario | Current effect | Post‑2025 risk |
|---|---|---|
| Settlor-interested trust | Can trigger inclusion in donor estate | May face trustee periodic charges and donor inclusion |
| Excluded non-UK assets | Often outside IHT now | May lose protection after residence test |
| Distribution after 10 years | Trust charge may apply | Also risks donor estate inclusion if link remains |
Key actions before 6 April 2025: test whether the settlor is truly excluded, consider restructuring or winding-up where sensible, and keep clear records of relevant dates. We recommend early, practical review rather than speculation.
Conclusion
Before you transfer anything, remember that ongoing occupation or income can change the tax picture.
If you pass an asset but keep using it, HMRC may treat the value as still in your estate for inheritance tax. Watch common triggers — mainly your home or continued income — so you spot risk early.
Survival for seven years only helps once the use truly stops. Timing and clear evidence matter. Two practical routes usually work: charge proper market rent and record it, or ensure the donor is genuinely excluded from meaningful enjoyment.
Also check income tax traps such as POAT before you act. We recommend you seek tailored advice for high-value transfers to avoid costly reversals.
Good planning keeps control, reduces surprises, and makes things simpler for loved ones. See our tips on claiming back HMRC inheritance tax here.