Many property owners are choosing to gift homes to family members, often as part of estate planning strategies. However, when the gift involves a “reservation of benefit”—such as retaining the right to use a holiday home—it is essential to approach the process with caution. A formal RICS Red Book valuation is strongly recommended to ensure compliance with tax regulations and avoid unexpected liabilities.
Understanding Reservation of Benefit
A reservation of benefit occurs when a person gifts a property but continues to enjoy personal use of it, for example by staying in a gifted holiday property without paying rent. Under HMRC rules, such arrangements may invalidate the gift for inheritance tax (IHT) purposes. In these cases, the property may still be considered part of the original owner’s estate when calculating IHT, unless specific conditions are met.
The Role of a RICS Red Book Valuation
A RICS Red Book valuation provides a formal, professionally regulated assessment of the property’s market value at the time of the gift. Unlike informal estimates or online appraisals, Red Book valuations follow strict standards to ensure consistency, transparency, and credibility.
This type of valuation is essential for tax reporting, particularly where the gifted property continues to benefit the original owner. Without it, there is a greater risk that HMRC could dispute the declared value, potentially leading to penalties or increased tax exposure.
Holiday Homes Require Extra Care
Gifting a holiday home is a common choice, but it carries additional complexities. These properties often continue to be used by the donor and their family, which can create a clear reservation of benefit. If the donor does not pay full market rent or fails to establish the market value at the time of transfer, the property may be pulled back into their estate for IHT purposes.
In some cases, this has led to significant tax bills for families who believed the gift had removed the asset from the estate.
Planning Ahead
Before gifting any property—especially one that may continue to be used by the donor—it is vital to obtain a professional RICS Red Book valuation and seek legal or tax advice. Doing so ensures accurate reporting and reduces the risk of later disputes or tax complications.
A proper valuation is not just a formality; it is a key part of safeguarding the effectiveness of the gift and protecting family wealth for the future.