Can I Give All My Assets to My Children and Avoid Inheritance Tax?
This is a question we hear regularly—and the short answer is: yes, you can, but only if you do it right. Giving away your assets during your lifetime can help reduce your inheritance tax (IHT) bill. However, HMRC has strict rules in place to prevent people from giving away property or money while still enjoying the benefits—commonly referred to as a Gift with Reservation of Benefit (GROB).
In this article, we’ll explain the IHT rules around gifting assets, especially property, and the legitimate ways you can reduce your estate’s exposure to tax—without falling foul of HMRC.
The Basics: Gifting and the Seven-Year Rule
Gifts made during your lifetime can fall out of your estate for IHT purposes if you survive seven years from the date of the gift. These are called Potentially Exempt Transfers (PETs). If you die within seven years, the gift becomes part of your estate, and IHT may be due depending on the value and other gifts made in the same period.
But there’s an important caveat: you must not retain any benefit from the asset after the gift.
If you do, it’s considered a GROB, and HMRC treats it as if you never made the gift at all.
Common Example: Gifting the Family Home
Let’s say you want to gift your home to your children but continue living in it. Unfortunately, under GROB rules, the property will still count as part of your estate for IHT—even though your children are now on the title deeds.
So, what are your options?
Structuring It Correctly: Three Gifting Workarounds That Avoid GROB
1. Paying Market Rent
If you want to stay in the property after gifting it, one option is to pay full market rent to your children.
This removes the GROB because you’re no longer benefiting from the gift for free.
Conditions:
- Rent must be at full market value and regularly reviewed
- You must continue paying rent until death or until you leave the property
- Your children must declare and pay tax on the rental income
Risk: If you stop paying rent—even temporarily—the GROB rules apply again, and the property re-enters your IHT estate.
2. Joint Occupation
You can gift a share of your home (e.g., 50%) to your child and continue to live there together.
This can work without paying rent, provided:
- The child genuinely lives in the property with you
- You share the running costs (utilities, repairs, council tax) in proportion to ownership
- The child continues to live with you until your death
After seven years, the gifted share of the property falls out of your estate for IHT purposes.
Note: If your child moves out before your death, HMRC may consider the gift to be a GROB again.
3. Gifting a Property You Don’t Live In
If you have a second home or rental property, you can gift it (or a share of it) to your children and not live in it afterwards.
In this case:
- You must completely relinquish occupation
- The gift is not a GROB
- After seven years, the property is outside your estate for IHT
Even better, you can agree to split the rental income unequally (e.g., you gift 50% of the property but still receive 85% of the rental income). This is allowed because you do not occupy the property.
However, you and your children will need to:
- Declare income based on the agreed rent split
- Pay income tax accordingly
This strategy can be particularly effective in combining income flexibility with IHT efficiency.
Points to Watch
| Scenario | IHT Position | Is it a GROB? |
|---|---|---|
| Gifting your home but staying rent-free | Stays in your estate | Yes |
| Gifting your home and paying market rent | Out of estate after 7 years | No |
| Gifting a share and cohabiting | Out of estate after 7 years | No (if rules followed) |
| Gifting a rental property and retaining some rent | Out of estate after 7 years | No |
| Gifting a property you still use occasionally | Potentially still in estate | Risk of GROB |
Timing and Taper Relief
If you die within 7 years of making a gift, IHT is potentially due. However, taper relief reduces the IHT payable the longer you survive:
- Less than 3 years: 40%
- 3–4 years: 32%
- 4–5 years: 24%
- 5–6 years: 16%
- 6–7 years: 8%
- 7+ years: 0%
This can still make lifetime gifting worthwhile, especially if done early.
Practical Advice Before You Gift
- Record the gift date and value for future IHT reference
- Get professional valuations, especially for property
- Draw up formal tenancy agreements if paying rent
- Declare rental income on both sides if income continues post-gift
- Keep detailed records of running costs and occupancy
Final Thoughts
Gifting assets to your children can be a very effective way to reduce your IHT liability, but only if done with care and correct structure. Missteps—such as continuing to benefit from the gift—can easily result in HMRC reclassifying the gift as part of your estate.
At Merranti Accounting, we help clients with tailored inheritance tax planning that ensures their wealth is protected—and their intentions are fully realised. Whether you’re thinking of gifting property, cash, or business interests, we can guide you on the tax implications and structure things for maximum benefit.
Contact Merranti Accounting today to discuss your estate planning strategy—and take control of your inheritance tax exposure.
