Understanding Gift With Reservation of Benefit (GROB) – and How to Avoid the Hidden Tax Trap
For many families, gifting the home or other assets to children feels like a natural step in long‑term planning, especially when thinking about inheritance tax or future care fees. But the tax rules are never quite as simple as they seem, and one of the biggest pitfalls is the Gift With Reservation of Benefit, known universally as a GROB.
A GROB is not a tax in itself. It’s a tax trap. And it catches far more people than you might expect.
What Is a Gift With Reservation of Benefit?
A GROB occurs when you give away an asset but continue to benefit from it. HMRC’s view is simple: if you still enjoy or use the thing you supposedly gifted, you haven’t really given it away at all.
The most common example?
Parents gifting their home to their children… but continuing to live in it.
If you continue living in the property without paying full market rent, HMRC treats the gift as never having happened. That means the property remains part of your estate for inheritance tax (IHT) purposes.
Even if the transfer happened 20 years ago.
Even if you had the best of intentions.
When Does a GROB Catch People Out?
- Gifting the home but continuing to live in it rent‑free; classic GROB.
- Gifting a holiday home but still using it.
- Giving away investments but continuing to receive the income.
- Transferring assets into a child’s name while still controlling or using them.
The rule of thumb: if you get any significant benefit, HMRC reallocates the gift back into your estate for tax.
How to Avoid a GROB
Avoiding a GROB is surprisingly simple, but only if you understand what HMRC expects.
1. Pay Market Rent
If you gift your home to your children but want to keep living in it, you must pay full, open‑market rent, reviewed regularly, and ideally overseen by a letting agent.
The rent must be:
- Paid from your income, not gifted back to you.
- Declared by the children as rental income (they may pay tax on it).
This can work very well for families, but it must be done properly.
2. Move Out After Gifting
Simple, but effective. If you no longer live in the home, there’s no reservation of benefit.
3. Use the Nil Rate Band (NRB) Wisely
If the value of the gifted asset is within your nil rate band (£325,000 per person), a GROB isn’t fatal — because even if HMRC pulls the asset back into your estate, it doesn’t create extra tax.
This makes small or strategic gifts more flexible, especially for est.ates well below the IHT threshold.
4. Use Trusts Carefully
Certain trusts — such as
- Flexible Life Interest Trusts (FLITs), and
- Right to Occupy (RTO) Trusts, can protect property while avoiding the problems associated with outright gifting.
However, the rules are complex, and specialist drafting is essential.
Does a GROB Affect Care‑Home Fee Planning?
Yes, but not in the way people think.
Local authorities conducting a care‑fee financial assessment will look for gifts made deliberately to avoid paying for care. This is known as deliberate deprivation of assets.
If you gifted your home but continued living there rent‑free (a GROB), the council is likely to argue:
You didn’t really give the property away, because you kept the benefit.
So:
- The gift won’t help you reduce your assets for care fees.
- AND HMRC may still treat the property as yours for inheritance tax.
A double‑whammy.
This is why outright gifting of the home is almost never advisable without professional planning.
Section 102(b) – What It Really Means
Section 102(b) of the Finance Act 1986 is the rule that prevents people gifting assets “on paper” while continuing to benefit from them in real life. If you gift your home to your children but keep living in it rent‑free, HMRC treats the gift as if you never made it at all.
In short:
If you still use it, you still own it (for tax purposes).
This isn’t a scheme. It isn’t a special trust. It’s simply the anti‑avoidance rule that creates a Gift With Reservation of Benefit (GROB).
GROB vs POAT vs QIIP vs Deed of Gift; Clear Comparison
GROB – Gift With Reservation of Benefit
- You gave it away but still use it.
- Example: gifting your home but continuing to live there.
- HMRC adds the property back into your estate.
- Not effective for inheritance tax or care‑fee planning.
POAT – Pre‑Owned Assets Tax
- HMRC’s fallback tax if GROB somehow doesn’t apply.
- If you still benefit from something you used to own, HMRC may charge income tax each year.
- Mostly triggered by avoidance schemes.
QIIP – Qualifying Interest in Possession (Life Interest)
- A legitimate right to occupy or benefit from trust property.
- The property stays inside your estate by design.
- No GROB. No POAT. No avoidance accusations.
- Excellent for bloodline planning and remarriage protection.
Deed of Gift (with Section 102(b) wording)
- You formally gift the property.
- If you keep living there → 102(b) triggers → GROB.
- Only effective if you truly give up the benefit.
Plain-English Summary for Clients
- Section 102(b) stops pretend gifts. If you still use the asset, it’s still yours for tax.
- GROB means the gift failed, the asset stays in your estate.
- POAT is a backup income tax HMRC uses if someone tries to sidestep GROB.
- QIIP (life interest trust) is the clean, compliant method for living in a property held in trust.
- A Deed of Gift only works if you genuinely give up the asset completely — no benefit, no control, no occupation.
The Good News: Not Everyone Needs to Worry About GROB
A GROB only matters if your estate is (or may become) taxable.
If your total estate, including any gifted assets pulled back in, is below the nil rate band, then even if a GROB applies, there may be no tax to pay.
For many modest estates, sensible planning and accurate information go much further than aggressive tax strategies.
When Proper Planning Protects You
Families often turn to gifting because they worry about losing everything to tax or care fees. But with the right planning, you can:
- Protect your home
- Avoid unnecessary tax
- Prevent deprivation‑of‑assets issues
- Reduce stress for beneficiaries
- Stay firmly within the rules
At Conwy Wills and Trusts, we help clients choose the right strategy for their circumstances — whether that’s a trust, market‑rent arrangement, or simply keeping the property and planning around it.
You don’t need complex schemes. You just need clarity.
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📧 admin@conwywillsandtrusts.co.uk
🌐 www.conwywillsandtrusts.co.uk
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