What are the Islamic rules regarding ownership of Gifts for Inheritance Tax purposes?

Q: In the UK, it is possible through a UK inheritance tax law, known as the 7 year rule for a mother to transfer ownership of a home to her son.   The idea is that when the transfer is made, the individual who gifts the property has to live for 7 years for there to be no inheritance tax enforced on the one who was gifted it. 

Apart from this condition, there is one more.  The one who made the gift is unable to benefit from it for 7 years. This means they are not allowed to live under that roof, nor are they allowed to receive profit from it if rented, because the idea is that it is not theirs to benefit from until the 7 years come to pass.  After which, they are able to benefit from it i.e. they can live under the roof if the one who now owns it permits this.

In this case, however, the mother does not want to relinquish power over her property, and says she’ll only transfer the house under her son’s name if she is able to stay in the house and benefit from it.  The only legal way the mother is able to stay in the house and use it as a permanent place of residence after gifting it to her son, is if she lives in it as a tenant, meaning, she is subject to paying a rent to the new owner (the son) at a market value.

At the moment, the mother receives income from the state, and is letting two rooms in the house and plans to let a third.  She has no other residence in the UK, and if she decides to transfer her home under the 7 year rule, she will be obliged to pay rent to her son, which she doesn’t like the idea of, unless her son gives her back the money.

The question is, would it be permissible for the mother to stay in the house while they pay a rental market value to the son and then the son give back this money to his mother?

الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب

 A: In order for the gift to be valid under Islamic law, there must be transfer of ownership and relinquishing of possession without any encumbrance from the mother.  This, includes removing all her personal effects from the property.  If she retains possession of the house and does not relinquish possession to the son then the gift will not be valid.

As for whether, the arrangement described in the question is permitted to mitigate against inheritance tax then that depends upon what the inheritance tax rules will allow.  If it is not allowed under the rules governing inheritance tax and this arrangement is effected to reduce the tax liability then this is a form of deception and is not permitted.

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