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/ 05 Jul 2023

Beware Inheritance Tax Gifting – elderly woman loses her home after gifting it to her daughter

A recent court case in London has been all over the news this week and it serves as a stark warning to parents looking to mitigate their Inheritance Tax bill through gifting to their children. Associate Samantha Fennah provides an overview of the recent case below, and where it all went wrong.

Samantha Fennah


Private Client

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Relationship breakdown

The case hinges around a dispute between a mother and daughter. The mother owned the freehold to a large house in Earlsfield which she subsequently split into two flats with a lease for the ground floor and one for the upstairs. It seems that the daughter already owned the leasehold to the ground floor flat but in 2004 her mother transferred her the leasehold to the upstairs flat and the freehold to the whole building. This would mean that the daughter owned the entire building.

Then in 2008 the pair had a falling out and the relationship has deteriorated drastically since then with accusations of bad behaviour on both sides including 155 hoax calls to the police from the mother, noise nuisance and water damage. The situation came to a head when the mother refused to allow workmen into the upstairs flat to carry out repairs. The daughter claimed that she had tried for years to carry out repairs to the property, which is in a dangerous condition, but her mother had refused the intervention of family and the police along with defying multiple court orders which she allegedly tore up and threw in the garden. In response to this the daughter issued an eviction notice in November 2022 for her mother to vacate the upstairs flat. The mother refused and the case has now come before a judge this week.

The findings

The judge found that the mother had gifted the upstairs flat and transferred the freehold title which was in their joint names to her daughter’s sole name as a “gift to avoid inheritance tax”. Counsel acting for the mother argued that she had been tricked into gifting the flat by her daughter and had not known about the transfer. Going on to say that she had always had an “expectation to live there for the rest of her life” and that that must have been part of any agreement to transfer it. It was argued that the mother never expected to be kicked out of the flat in her lifetime by her daughter or she would not have made the gift.

The judge rejected this argument and said that there was no way that simultaneously the mother was tricked into the gift whilst also relying on an agreement to be able to remain in the flat – either she was aware of the gift, or she was not. The judge found that it was a valid gift that the mother had carried out with the help of a solicitor, and she had not even told her daughter about it at the time. He found that the mother had been living in the upper flat under a bare license from her daughter which was revoked by the eviction notice in November 2022. He commented that it appeared that the daughter had been pushed to her limit by the behaviour of her mother and felt she had no choice but to evict her.

Gifting as a tax planning method – what not to do

Whilst this seems to be a very sad case of a family relationship breaking down irrevocably, it also highlights a common problem when parents are attempting to deal with inheritance tax. Many parents think that they can gift their home to their children whilst continuing to live there. There are several reasons why this is not usually a sensible or effective tax planning method. As we have seen with the above case, the children are under no automatic obligation to allow their parents to continue living in their home. Family relationships breakdown and it is important that parents ensure they are protected and do not risk losing their home in a family feud.

With all this said, continuing to live in a property you have gifted is often not even an effective Inheritance Tax planning tool. In order for a gift to be effective for Inheritance Tax purposes it must be a true gift and you cannot retain any benefit from the gift. For example, if you gift your home and continue to live in it as you did before, then when you die HM Revenue & Customs will treat the market value of the property as part of your estate and bring the value back into your estate for Inheritance Tax purposes. There are ways to make a valid gift for Inheritance Tax purposes but the laws surrounding this are complex and it is important you seek advice from a specialist solicitor before you make the gift. If you do not, you run the risk of making a gift that is useless for Inheritance Tax planning, whilst also putting your own future at risk.

How can our inheritance tax planning solicitors help?

The Private Client team at Hanne & Co are specialists in Inheritance Tax planning and can review your assets to help you come up with a plan that is effective and that safeguards your future. Additionally, if you are concerned that your current arrangements might not be effective for inheritance tax purposes call us today for an initial consultation.

Contact our inheritance tax planning solicitors today

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