What is the difference between a Deed of Gift and a Gift with Reservation?

This question relates to UK Law:-





I have an elderly widowed relative who has died in the last few months. He signed over his farm ten years ago to his son to avoid Inheritance Tax by signing a Deed of Gift.





I have since been told that as the elderly relative remained living in the farmhouse rent free then this is a Gift with Reservation and not a Deed of Gift as the elderly gentleman retained a benefit from the property by living in it.





My question is this:- does the fact the elderly gentleman remained rent free in the house make the Deed of Gift Void and if so then does disposal of all the assets (e.g. farm) revert back to the original Will.





I would be most grateful for some help on this please.

What is the difference between a Deed of Gift and a Gift with Reservation?
As you rightly say, your elderly relative signed a 'Deed of Gift' to try to avoid paying inheritance tax. This works as a gift to another individual is exempt from inheritance tax AS LONG as the indivudal who makes the gift survives seven years.





However this was a 'Gift with a Reservation of Benefit'. As such, if your elderly relative was still living in it at the time of death, it is treated as if it was still owned (s102(3) Finance Act 1986) by him BUT ONLY FOR TAX PURPOSES.





A gift with reservation of benefit has consequences for the amount of inheritance tax your elderly relative's estate will pay on the house, but NOT for the ownership of the house. The deed of gift is not void generally, only in relation to tax in an odd kind of way.





It in no way affects the transfer of ownership from your elderly relative to his son. The asset of the farm belongs to the son.





If that's not clear, please put more information and I'll clarify :)