A well-known inheritance tax (IHT) planning problem has recently been eased by government legislation, says The Schmidt Report. It concerns the situation in which an elderly person wants to give away part of his or her estate to save IHT when most of the estate comprises a property.
The infamous ‘gift with reservation’ rules still apply – you can’t give away your house and continue to live in it rent-free – but there is an “escape route”.
This escape route is available where the person to whom you are giving away an interest in your house – and it can only be an interest – also lives there with you.
The simplest example would be that of a widowed mother living with her unmarried daughter. They might decide that they will split the property ownership 50:50. But there is no reason why such planning should be restricted to a parent and child.
Moreover, “the rules don’t require the donee to be occupying the property as their sole or main residence”. That raises all sorts of planning possibilities that previously would have fallen foul of the rules.