The inheritance tax gift rule that catches families out
The Treasury has recovered £336 million in five years from people who failed to follow the gift rules properly, often by accident.
The Treasury has recovered more than £336 million from people who tried to dodge inheritance tax using gifts over the past five years. Around 2,500 failed gifts worth £840 million fell foul of a rule called GROB: Gift with Reservation Of Benefit.
The rule is simple but easy to get wrong. If you give something away but go on using it or having the benefit of it, then it is not a gift in the eyes of the taxman. When inheritance tax is calculated, it still counts as your property, not your child's, so the full inheritance tax charge applies at 40% on amounts above the £325,000 nil-rate band.
Homes are the most common failed gifts. You might, for instance, give your house to your daughter but keep a set of keys, continue to spend time there, or not make it clear who owns what. That ambiguity is enough to make HMRC treat it as a gift with reservation, so the full value is taxed at 40% on your death if your estate exceeds the nil-rate band.
The lesson from the Treasury's five-year recovery figures is stark: if you are thinking about giving away significant assets, take proper legal and tax advice first. A solicitor or tax adviser can help you understand the rules, make your intentions clear in writing, and avoid an expensive mistake that could cost your family tens of thousands of pounds.
Based on reporting by Saga Magazine (28 July 2026). Information only, not advice.
Information only. This is general information, not financial, tax or legal advice, and not a personal recommendation. Tax rules depend on your individual circumstances and can change. Please speak to a qualified, FCA-regulated adviser or a solicitor before acting.