Are you thinking about gifting your home to your children to reduce Inheritance Tax, but you'd still like to live there? It's one of the most common questions we hear at Westwood Estate Planning, and for good reason. The idea seems straightforward: give away your property now, continue living in it, and reduce the size of your taxable estate. Everyone wins, right?

Unfortunately, this is where many well-intentioned people unknowingly walk straight into one of the most expensive Inheritance Tax traps: the 'Gift with Reservation of Benefit.' And the consequences can be devastating for families who discover, after a loved one has passed away, that their careful planning didn't work at all.

In this guide, we'll explain exactly what this trap is, why it catches so many people out, and—most importantly—how you can genuinely gift assets to your family without falling into it.

The Three Essential Conditions You Must Meet

For a gift to qualify for the 'Gifts from Surplus Income' exemption, you must satisfy three crucial conditions:

1. From Income, Not Capital: Gifts must come from your regular income (pension, salary, dividends, etc.) after all your usual living expenses are paid, not from savings or asset sales. It's about genuine 'surplus.'

2. Must Be Regular: The gifts need to form a habitual pattern—monthly, quarterly, or annually—demonstrating a clear intention to make ongoing payments.

3. Maintain Standard of Living: After making gifts, you must still have enough income to maintain your usual lifestyle without financial strain or dipping into savings.

Remember, your executors will claim this exemption using form IHT403, so thorough record-keeping is vital.

Worried about the new pension Inheritance Tax rules coming in 2027?

From April 2027, unused pension funds will be included in your estate for Inheritance Tax purposes - potentially adding £34,000 to some families' tax bills. If you previously thought your pension was safe from IHT, these changes could significantly impact your estate planning.

At Westwood Estate Planning, we help you navigate these new rules through comprehensive estate valuations and strategic planning, including lifetime gifting and trusts.

Don't let uncertainty rob you of peace of mind - book a free 15-minute chat to understand how these changes affect you and explore your options.

Explore the risk of 'sideways disinheritance' in this article by Gary Tonsley of Westwood Estate Planning.

Using a unique analogy with Elsa's castle, Gary illustrates how your home might unintentionally pass outside your family, leaving your children without their intended inheritance. Understand this crucial pitfall and discover why protecting your share of your home with a Will is vital.

Stay tuned for solutions in the next installment.

Discover how your Will can safeguard your share of your home, ensuring it passes to your loved ones or chosen causes, even if life takes unexpected turns.

This article from Gary Tonsley of Westwood Estate Planning highlights the importance of proper planning to protect your legacy and provide peace of mind for your family. Learn why a well-crafted Will is essential for securing your home's future.

Discover how your Will can protect your valuable assets, from your home to your vinyl collection, ensuring they go to your chosen loved ones in the right way. Gary Tonsley of Westwood Estate Planning explains the power of Trusts as "estate planning bodyguards" to safeguard your wishes and provide peace of mind. Learn why asset protection is crucial for your legacy.