Chattel lease

In order for a gift to be effective for inheritance tax (IHT) purposes, you must be excluded from benefiting, other than to a minimal extent, from the asset given away. However, you can use the asset without jeopardising your IHT position where you lease the asset from the person you gave it to.

Not a gift with reservation

Where you make a gift and retain rights over it, for example giving antique furniture to your son or daughter, but keep it in your home, it remains part of your estate for inheritance tax pruposes until you cease to have rights or access to it. The gift is then treated as having been made at that time and so will become an IHT exempt after seven years have elapsed. 

Paying rent for use of, or access to the asset given away,at market rent/fee prevents the so-called IHT “gift with reservation” rule. Ideally, the terms of access to the asset, including the market value rent (i.e. what a third part would expect to pay if they leased the asset) should be set out in a written agreement. It’s advisable to ask a professional value to determine rent amount. Our Chattel Lease includes the terms and conditions necessary for HMRC to accept that there is no reservation of benefit.