If you’ve ever played the “Bank of Mum and Dad” and helped your kids onto the property ladder, this one’s for you.
Most of us know a little about inheritance tax (IHT) – e.g. the “live seven years after gifting and you’re safe” rule. There’s a couple of little-known cousins lurking in the shadows though which can bite when you least expect it.
Pre-Owned Asset Tax (POAT)
Gifting cash vs. living in the home
You give your kids money for a deposit. Seven years pass. Your estate is looking tidy for IHT purposes. All good, right?
But later, you move into the property, maybe a granny flat or annex, and suddenly HMRC sees a benefit. You’re now living in a house you partially funded. That “benefit” triggers POAT.
POAT = income tax
The tax treats your occupation as if it were rent. If the value exceeds a small threshold, you’re liable for income tax, even though you followed all the IHT rules.
Gifts With Reservation of Benefits (GWROB)
Very similar to POAT, GWROB is where you gift an asset itself (rather than gifting cash), but you still have use of it.
GWROB = inheritance tax
A gift caught by the GWROB rules is included in your death estate even if you survive 7 years, so you may end up paying inheritance tax (IHT) – subject to allowances.
How HMRC calculate it
A surveyor is usually required to figure out the open-market rental value. Then HMRC periodically reviews it. Translation: complicated, paperwork-heavy, and potentially costly.
⚠️ How you can avoid getting caught out
1) GWROB – pay full market rent or restructure arrangements
2) POAT – elect to pay inheritance tax instead or restructure arrangements
✅ The takeaway
If you’re gifting money or property to your children and might later live in it, get specialist tax advice. POAT and GWROB are those “hidden” rules that can turn good intentions into a tax headache.
⚠️ Other assets
These rules also apply to assets other than property so make sure you check before gifting.