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Gifting sounds simple, until tax gets involved. In Episode 9 of The Tax Compass Podcast, Simon Roue and Laura Sant of LSR Partners discuss the complexities and planning opportunities around gifting assets, from property to income, and how the rules can differ depending on your relationship, your timing, and who receives the gift.

Gifting Property to Children

Property is one of the most commonly gifted assets, but if you're still living in it, you need to tread carefully. Continuing to benefit from a property after gifting it (e.g. by still living in it) may trigger the gift with reservation of benefit rules, potentially putting the value of that property back into your estate for inheritance tax purposes.

How to Avoid Gift with Reservation Rules

One solution? Pay market rent to the new legal owners. But beware: market rent needs to be reassessed regularly to remain compliant with HMRC’s view, setting it once and forgetting it can land you in trouble.

What If the Kids Are Under 18?

Children under 18 cannot legally own property. In these cases, assets may be held in trust. However, rental income earned on that property may be taxed as if it's the parent’s income, making the tax-saving plan less effective.

Gifting and Rental Income

For adult children, a property gift followed by paying market rent can create a circular but legitimate inheritance tax planning strategy. The rental income is declared by the children, tax is paid, and surplus cash can be gifted back to the parent. But again, this only works with adult children, not minors.

Trusts, Form 17, and Declarations

Spouses can split ownership of assets and income using a Declaration of Trust and Form 17. But HMRC assumes a 50/50 beneficial ownership unless Form 17 is submitted, prospectively, not retrospectively. That distinction matters.

International Considerations

Clients living abroad, like one couple with a UK/China split, can also benefit from careful gifting and ownership structuring. For example, using up the UK-resident spouse’s personal allowance while keeping tax liability away from the non-resident partner.

Inheritance Tax: Plan Ahead

Gifting is not just about now, it's about reducing your estate for inheritance tax purposes. But these gifts generally need to be made at least seven years before death to be fully exempt. And new rules mean you can’t afford to wait and see.

Key Takeaway

Gifting can be a powerful planning tool, but it's full of traps for the unwary. Timing, documentation, and the relationship between parties all matter. Whether you're gifting property, income, or shares, it's essential to understand the tax implications and act early.

Get the Right Tax Advice

Whether you’re considering transferring your home, investing in your child’s name, or structuring spousal ownership more effectively, now is the time to take advice.

Contact LSR Partners today to make sure your gifts don’t come with a tax sting.