When the 7-Year Rule Does Not Apply: Gifts with Reservation of Benefit (GWR)
- Kylie Cox
- Aug 9
- 3 min read
“If I give away my house and live for seven years, it’s safe from Inheritance Tax."
We hear it all the time. And it’s one of the most common estate planning myths out there.
Sadly, it’s not always true. The so-called 7-year rule only works for genuine, no-strings-attached gifts. If you give something away but still use it, enjoy it, or benefit from it, HMRC may treat it as if you never gave it away at all.
This is called a Gift with Reservation of Benefit — or GWR for short.
Meet Betty and Sally
Let’s say Betty sells her home and gives the £300,000 proceeds to her daughter, Sally. Sally then uses the money to buy a new house — and Betty moves in with her. They both live there happily ever after.
Sounds simple. Sounds like Betty’s money is now “out of her estate” for Inheritance Tax purposes. But not so fast…
HMRC sees this as a GWR because Betty still benefits from the gift: she’s living in the house her money paid for, without paying a proper, market-rate rent.
Meet Bob — Two Common Variations
1. Bob gives his house to his children outright
Bob signs over the deeds to his two children but continues to live there rent-free. Result? HMRC says the house is still in Bob’s estate for Inheritance Tax purposes — even if he survives seven years. The only way this could work is if Bob pays a proper market rent and covers his share of bills.
2. Bob puts the house into a Trust for his children
Bob thinks he’s being clever and transfers his house into a Trust with his children as beneficiaries, but then keeps living there as before. Result? Still a GWR. Unless Bob pays full market rent to the Trustees, the property is treated as though it still belongs to him when calculating Inheritance Tax. This can also have disastrous consequences for the availability of certain allowances and reliefs.
The Other Dangers of the “Give It Away and Stay” Plan
GWR isn’t the only problem with these types of arrangements:
Loss of control: Once you’ve gifted your property, you can’t change your mind.
Relationship breakdowns: If a child divorces, their ex could claim a share of the house. You and your child might fall out and find it impossible to live together. What would happen to you then?
Financial trouble: If your child gets into debt, creditors could force a sale.
Predeceasing: If your child dies before you then their Will or the rules of intestacy (if they don't have a Will), will decide where the property goes and you could find yourself being forced out of your home.
Care fees: The local authority may see this as deliberate deprivation of assets and still treat you as owning the value of your former home.
Common examples of GWRs
Giving your house to your children but not paying market rent to live there.
Gifting a holiday home but still using it each summer.
Transferring investments to family but continuing to receive the income.
Selling your home, giving the money to a child who buys a new property you live in.
When is GWR actually a problem?
A GWR only matters for Inheritance Tax (IHT) purposes if your estate is over the tax-free thresholds.
Right now, most married people or those in a civil partnership, who have children can pass on up to £1 million free of IHT if:
£325,000 Nil Rate Band (NRB) per person, plus
£175,000 Residence Nil Rate Band (RNRB) per person,
And you’re leaving your home to direct descendants.
For married couples or civil partners, these allowances are combined — that’s £1 million between you. A single person would have a maximum of £500,000 tax free if they are leaving their home to their children.
If your estate is worth less than this, a GWR might not increase your IHT bill — but it can still cause the other problems we’ve mentioned, such as loss of control or care fee implications.
How to avoid the GWR trap
If you gift property and still want to use it:
Pay full market rent — and actually pay it, with proof.
Consider alternative options, instead of lifetime gifting.
Plan early — the more time you have, the more legitimate options there are.
Get expert advice before transferring anything substantial.
Toucan Law Tip
GWRs can be costly mistakes. Before giving away your home or a large sum of money, speak to us. We’ll make sure it’s done the right way — protecting both your assets and your family.
