The most-attempted IHT planning move in UK private client work is the family-home gift to adult children. Parent transfers the legal title (or a beneficial share) of the home to one or more adult children; the parent continues to live in the home; the family expects the home to fall out of the IHT estate on the seven-year PET clock. On the standard fact pattern the move fails. FA 1986 s.102 catches the gift as a gift with reservation of benefit (GROB): the property is treated as remaining in the donor's death estate at death market value, the seven-year clock is irrelevant, and the planning has cost the family nothing in IHT but added legal complexity and lost the TCGA 1992 s.62(1) CGT death-uplift that would have applied if the parent had simply held the property to death.

The narrow exit routes from s.102 are three. First, the parent pays the donee a full open-market rent for the continued occupation under the general s.102 + s.102A rule. Second, the parent ceases occupation entirely under the s.102A(4)(a) cease-occupation safe harbour. Third, the parent gifts only an undivided share (not the whole interest), both parent and donee actually occupy the home as their joint residence, and the parent receives no non-negligible benefit provided by or at the expense of the donee, satisfying the s.102B(4) shared-occupation carve-out. Of the three, the s.102B(4) route is the most useful structural option for families where the parent and adult child both live in the home and both intend to continue doing so.

This page walks the three statutory exit routes, the FA 2004 Schedule 15 POAT backstop that catches arrangements escaping s.102, and two worked family-home scenarios. The verbatim s.102B(4) wording is verified against legislation.gov.uk at write time.

The family-home GROB trap in 30 seconds

FA 1986 s.102(1) catches gifts of property where either (a) possession and enjoyment is not bona fide assumed by the donee at or before the relevant period (the seven years before death, or gift-to-death if shorter), or (b) at any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and any benefit to the donor by contract or otherwise. A parent continuing to live in the gifted home rent-free is enjoying benefit; the s.102(1)(b) test fails; under s.102(3) the property is treated as remaining in the donor's death estate at MV at death. The seven-year PET clock is irrelevant.

The consequences for the family: (i) the property is in the IHT estate at full death-market value, paying 40% IHT above the available NRB and RNRB; (ii) the s.62(1) CGT death-uplift on the property is lost (the children inherit at the original gift-date base cost, not the death-date MV, creating substantial latent CGT on any future sale); (iii) the donee has gained legal title with no IHT benefit, only legal complexity; (iv) the family has paid solicitor fees and stamp duty (where the mortgage was assumed by the donee, see the SDLT-assumed-debt point in our Wave 6 B1 pillar) for no tax-saving result.

The three statutory exit routes

Sessions advising on family-home gifts must surface all three routes and apply the relevant test to the actual facts. Each route has its own conditions, its own documentary requirements, and its own cohort fit.

Route 1: full-market-rent occupation under s.102 + s.102A general rule

Where the parent gifts the whole interest in the home and continues to occupy, the parent can pay the child a full open-market rent for the continued occupation. The s.102 analysis: the donor's continued occupation is in exchange for full consideration (the market rent); the donor enjoys no benefit because the occupation is paid for at full value; the s.102(1)(b) test is not failed.

The structural requirements are detailed. The rent must be commercial (assessed against contemporaneous local market evidence; reviewed regularly, typically every two to three years), paid regularly in cash, with documentary evidence (formal tenancy agreement, bank evidence of monthly rent payments, rent-review correspondence). The arrangement is a real landlord-tenant relationship: the child is the landlord, the parent is the tenant; the child receives the rent as taxable income and pays income tax at their marginal rate; the child is responsible for landlord obligations (gas safety certificates, EPC, deposit protection where applicable in the relevant jurisdiction).

The structural disadvantages: substantial annual cash cost (market rent on a £500,000 home in a regional city is typically £18,000 to £24,000 per year; on a London home, £36,000 to £60,000 per year), with the parent funding from post-tax income. The child pays income tax on the rent (basic rate £4,000 or higher rate £7,200 on £18,000 of rental income, before any allowable expenses on the property). The arrangement frequently fails in practice because the family treats the rent informally or below-market; either failure breaks the s.102 analysis and re-triggers GROB.

Route 2: cease-occupation safe harbour under s.102A(4)(a)

FA 1986 s.102A applies to gifts of an interest in land (typically the whole interest) made on or after 9 March 1999. The 'significant right' test at s.102A(2) treats the interest as subject to a reservation where, at any time during the relevant period, the donor or spouse enjoys a 'significant right or interest' or is party to a 'significant arrangement' in relation to the land. Subsection (3) defines 'significant' by reference to whether the right entitles the donor to occupy the land otherwise than for full consideration.

Subsection (4)(a) provides the cease-occupation safe harbour: a right is not significant if it does not and cannot prevent the enjoyment of the land to the entire exclusion, or virtually to the entire exclusion, of the donor. The practical mechanic: the parent moves out entirely and does not return as a regular occupier. Visits to the children at the gifted home (overnight stays for family events, holiday visits, dinners) should not constitute 'enjoyment' for the donor; the children occupy as their PPR.

The cessation triggers a s.102(4) deemed PET on the date of cessation (which may be later than the date of the original gift). A fresh seven-year clock starts from the cessation date. The parent must survive seven years from cessation for the property to fall fully out of the estate. The deemed PET is at the market value on the cessation date (not the original gift date), so an appreciating property is now in the cumulation at the higher value.

The route works structurally but requires the donor genuinely to leave the property and find alternative accommodation. The parent's onward-housing costs (purchase or rental of a separate property) are the substantial structural cost of the route.

Route 3: s.102B(4) shared-occupation carve-out

Verbatim FA 1986 s.102B(1): "This section applies where an individual disposes, by way of gift on or after 9th March 1999, of an undivided share of an interest in land." The section is the share-of-interest variant of s.102A. Verbatim s.102B(2): the shared interest is treated as property subject to a reservation, with s.102(3) and s.102(4) applying, except where subsections (3) or (4) apply.

Subsection (3) carves out the case where the donor does not occupy the land, or occupies it exclusively in exchange for full consideration. Subsection (4) is the shared-occupation carve-out and is the workable family-home route. Verbatim s.102B(4): "This subsection applies when (a) the donor and the donee occupy the land; and (b) the donor does not receive any benefit, other than a negligible one, which is provided by or at the expense of the donee for some reason connected with the gift."

Two cumulative conditions:

  • Condition (a): both donor (parent) and donee (adult child) actually occupy the land as their home. The occupation must be real and continuing; weekend or occasional occupation by the donee is unlikely to satisfy the test. HMRC's expectation per IHTM14333 onwards is that the donee is genuinely resident, with the home as their PPR or at least a real residence in their pattern of life.
  • Condition (b): the donor does not receive any benefit (other than a negligible one) provided by or at the expense of the donee for any reason connected with the gift. The most common breach is the donee paying disproportionate household expenses (council tax, utilities, repairs, maintenance) on behalf of the donor. The donor must pay their own share of household costs proportionate to their use, with documentary evidence (bank transfers, receipts, regular expense-sharing arrangement). The "reason connected with the gift" wording in (b) ties the benefit-test to the gift itself; arms-length parent-child financial support unrelated to the gift (e.g. the adult child paying for a parent's care unrelated to the home) is outside the test.

Where both conditions are satisfied, s.102B(4) applies and the gift is NOT subject to reservation. The share-gift is a clean PET; the seven-year clock runs from the date of the gift; the parent must survive seven years for the share to fall fully out of the estate.

Worked example 1: Singh widow-and-adult-child shared occupation

Mrs Singh, age 68, widowed two years ago. She lives in the £600,000 family home; her 35-year-old adult daughter Sarah moved back into the home after Mr Singh's death and has been living there with Mrs Singh since. Both intend to continue this arrangement indefinitely. Mrs Singh wants to start the IHT seven-year clock running on her share of the home value.

Structure: Mrs Singh executes a declaration of trust transferring a 50% beneficial share of the family home to Sarah. The gift is the 50% beneficial share, valued at £300,000. Legal title remains in Mrs Singh's name for ease of subsequent management; the beneficial split is documented via the declaration of trust.

s.102B analysis:

  • The gift is of an undivided share of an interest in land made after 9 March 1999. s.102B applies.
  • The default reservation rule under s.102B(2) is in play unless subsections (3) or (4) carve it out.
  • Subsection (4) condition (a): both Mrs Singh and Sarah occupy the home as their joint residence. Satisfied.
  • Subsection (4) condition (b): Mrs Singh does not receive any non-negligible benefit provided by or at the expense of Sarah connected with the gift. Operational structure: Mrs Singh pays 50% of all running costs (council tax, utilities, buildings insurance, repairs, maintenance) directly from her own bank account; Sarah pays the other 50%; no cross-funding by Sarah on Mrs Singh's share; full documentary evidence in a shared expense ledger. Satisfied.
  • s.102B(4) applies. The 50% gift is NOT subject to reservation. The gift is a clean PET starting the seven-year clock from the date of the declaration.

Outcome: if Mrs Singh survives seven years from the declaration date, the £300,000 share is fully outside her death estate, saving £120,000 of IHT at the 40% rate above the NRB. If she dies within seven years, the £300,000 share is added to her death estate with taper relief on years 3 to 7 (32% / 24% / 16% / 8%).

CGT side: the gift is a TCGA 1992 s.17 deemed-MV disposal triggering CGT on Mrs Singh's latent gain on the 50% share. PPR relief at TCGA 1992 s.222 is available for the period of Mrs Singh's occupation as her main home (typically 30+ years), eliminating most or all of the gain. The 9-month final-period rule (PPR continues to apply for the last 9 months even after the donor has ceased to occupy, in the case where the donor moves out) is not in play because Mrs Singh continues to occupy.

SDLT side: no chargeable consideration; gift with no debt assumed by Sarah; nil SDLT.

Worked example 2: Khan parents-into-annexe cease-occupation

Mr and Mrs Khan, both age 70, own the £900,000 family home outright. Their 40-year-old daughter Aisha and her family have wanted to move into the main house. The Khans build a self-contained annexe in the garden (planning permission, full kitchen, separate front door, separate utilities, separate council tax band assessment) and move into the annexe. The £900,000 main house is gifted to Aisha; the annexe is retained by the Khans on a separate title carved out from the original land.

s.102A analysis:

  • The gift of the main house is a gift of an interest in land made after 9 March 1999. s.102A applies (whole-interest variant, not s.102B share-variant).
  • Subsection (2) significant-right test: the Khans must not enjoy a 'significant right or interest' in the gifted main house.
  • The annexe has been carved out as a separate title with separate boundaries, separate access, separate council tax. Occupation of the annexe is occupation of a DIFFERENT property, not 'the land' that was gifted.
  • Aisha and her family occupy the main house as their PPR.
  • The Khans visit Aisha for family events but do not 'enjoy' the main house in any meaningful sense; their day-to-day life is in the annexe.
  • s.102A(4)(a): the Khans' continued involvement does not prevent the enjoyment of the main house to the entire exclusion (or virtually to the entire exclusion) of the Khans. Satisfied.
  • The arrangement is outside s.102A reservation. The gift is a clean PET.

The Buzzoni nuance: the case Buzzoni v HMRC [2013] EWCA Civ 1684 confirmed that the donor-benefit test under the GROB rules looks at the substance of the arrangement, not the form. HMRC will examine whether the annexe is genuinely a separate property: do the Khans regularly use the main house's kitchen, share laundry facilities with Aisha, treat the two as a single home? If the annexe is in substance a part of the main house (a converted bedroom suite with separate door but shared services), HMRC may argue the cessation has not happened and s.102 reservation continues. The annexe must be structurally and functionally separate: own kitchen, own bathroom, own utilities, own front door, own council tax band, own postal address ideally. Documentary trail at the planning permission and title-deed stage is critical evidence.

Outcome: if both Khans survive seven years from the title transfer, the £900,000 main house is fully outside their death estate. CGT relieved fully under PPR for the Khans' decades of PPR occupation. SDLT nil on the gift (no chargeable consideration).

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The FA 2004 Schedule 15 POAT backstop

Pre-Owned Assets Tax under FA 2004 s.84 + Schedule 15 is the income-tax-side anti-avoidance regime designed to catch arrangements that escape s.102 GROB but leave the donor enjoying continued benefit from a former asset. The regime was enacted in 2004 specifically to address the proliferation of GROB-avoidance schemes that exploited gaps in the s.102 architecture.

The classic POAT case is the "sale at undervalue plus loan-back": the parent sells the home to the child at full market value, the child funds the purchase with a loan from the parent (so no cash leaves the parent's hands), the loan is structured as a long-term commercial debt with interest, the parent continues to live in the home rent-free or at peppercorn rent. The s.102 analysis: the parent did not 'gift' the property (it was a sale at MV); no GROB. The POAT analysis: the parent is enjoying continued use of a property they formerly owned and effectively still funds via the loan; FA 2004 Sch 15 catches the arrangement by levying an annual income-tax charge on the deemed market rent of the property at the donor's marginal rate.

The deemed market rent is the rent the donor would pay if leasing the property at full open-market value, less any rent actually paid. The charge is reported on the donor's self-assessment return as deemed income each year while the benefit continues. For a £500,000 home in a regional city with deemed market rent of £18,000 per year, the POAT charge is £18,000 × the donor's marginal rate (£7,200 at higher rate, £3,600 at basic rate).

The donor can elect under FA 2004 Sch 15 para 21 to be treated as making a gift with reservation instead of paying POAT. The election is made on form IHT500 by 31 January after the tax year in which the benefit first arises. The trade-off:

  • POAT route: annual income-tax charge of £7,200 (in the worked example); cumulative cost £144,000 over 20 years if the donor lives that long; property is OUT of the death estate for IHT.
  • GROB election route: no annual charge; property IS in the death estate for IHT at MV at death (40% IHT on £500,000 above the NRB = up to £200,000, less the value of the donor's NRB).

For a donor in good health expecting to live 15+ years, the POAT route may be cheaper. For a donor in poor health expecting to die sooner, the GROB election locks in tax certainty and is often preferred. The election is irrevocable for the period it covers; the choice between annual POAT and one-off-at-death GROB depends on the donor's age, expected survival, and the comparative cost calculation.

The cleanest planning approach is to design the gift to escape both regimes (true s.102B(4) shared-occupation with no donor-benefit; full-market-rent on a clean tenancy; or genuine cease-occupation with the donor moving out of the gifted property entirely). The POAT election is a fallback for structures that have already failed the GROB analysis but the donor wants to avoid the death-side IHT add-back.

Common drafting and operational mistakes

Six mistakes account for most of the value lost in family-home GROB planning. The first three are statutory misreadings; the next three are operational failures.

  • Mistake 1: assuming s.102B applies to the whole-interest gift. s.102B applies only to undivided-share gifts; whole-interest gifts use s.102A. Sessions confused about which section applies often end up applying the wrong test.
  • Mistake 2: assuming the s.102B(4) shared-occupation carve-out is a general "donor occupies the home" carve-out. It applies only where the donor gifted an undivided share AND both donor and donee occupy AND no donor-benefit-from-donee.
  • Mistake 3: assuming the donor can pay informal or below-market rent under the full-market-rent route. The rent must be genuinely commercial; below-market arrangements re-trigger GROB.
  • Mistake 4: failing to document the proportionate cost-sharing under the s.102B(4) route. The structure is correct on paper but the family treats household expenses informally, with the adult child paying for "things around the house" without contemporaneous documentation. HMRC enquiry on death looks for the documentary trail; absence of evidence is treated as failure of the carve-out.
  • Mistake 5: treating the annexe-cease-occupation route as a paper-only carve-out. The annexe must be genuinely structurally and functionally separate; shared facilities or regular cross-use by the parents undermines the cessation analysis under the Buzzoni framing.
  • Mistake 6: failing to consider the POAT analysis on structures that escape s.102. Many GROB-avoidance schemes (sale-at-undervalue-plus-loan-back; cash-gift-then-child-buys-property; sophisticated trust mechanisms that nominally exclude the donor) escape s.102 but are caught by POAT; the income-tax cost can be substantial over the donor's lifetime.

Where this page sits in the wider GROB cluster

B5 is the family-home GROB depth page with s.102B as the spine. Five other pages in the cluster address different angles:

For the wider landlord IHT decision frame across all routes, see An IHT Decision Framework for UK Landlords.