Dangers of making irrevocable gifts for Inheritance Tax purposes

Dangers of making irrevocable gifts for Inheritance Tax purposes

Social media has been filled with stories regarding an 82-year-old grandmother being evicted from her £1.4m home by her own daughter.

The case highlights the danger of making irrevocable gifts for Inheritance Tax purposes.

Stephanie Chung, associate in the private client team at Wake Smith Solicitors, looks at the details.

This article covers:

• Case background
• Dangers of irrevocable gifts for IHT purposes
• Your next move

Case background

In 2004 Norma Gibbons transferred her home of over 40 years to her daughter for 'inheritance tax planning reasons'.

Her three-bed flat, which had been in her sole name, and the freehold of the entire building, which had been in their joint names was transferred fully over to her daughter.

Unfortunately the relationship completely broke down and a series of court cases followed, culminating in a judgment being made by the court for Norma to leave her home.

Although Norma claimed she always had an 'expectation to live there for the rest of her life' and that her decision to transfer the property would have only have been on the basis of that agreement, Judge Johns determined the flat had been gifted outright, from mother to daughter on 19 August 2004.

From that date onwards, Mrs Gibbons occupied the property as a bare licensee, so that following her daughter's notice to leave, she was obligated to vacate possession of the flat.

Dangers of irrevocable gifts for IHT purposes

This case highlights the danger of making irrevocable gifts for IHT purposes. You cannot get the gift back if you subsequently fall out with the person you gifted it to.

Effectively the recipient can do whatever they like with it. If they want to give it away, or sell it, they can.

In addition, were they to become bankrupt or divorced, it forms part of their estate and will be taken into consideration in any legal proceedings.

Therefore if you want to retain control over how the asset is used in the future, you need to take legal advice before you give it away and consider your options.

It is also worth noting that the gift would only have been effective for IHT mitigation purposes if the mother had paid market rent (which the daughter would have had to pay tax on) while she lived there, otherwise it would fall foul of the reservation of benefit rules.

In this case, it seems unlikely that rent was being paid as the daughter was apparently unaware of the gift.

Your next move

The moral of this rather sad story is seek professional advice. We can guide you through the Estate Management, Wills and Probate services.

For further information please contact Stephanie Chung at Wake Smith Solicitors on 0114 224 2114 or email [email protected]

Or click the button below  to contact us and we will be in touch.

Published 18/07/23