Paying rent to reduce IHT

[Bowler]

My wife and I own our house as tenants in common. In mirror wills we are leaving our half to our two children.

The survivor is expecting to continue living in the property but neither our son or daughter will do so.

In order to reduce the IHT of the survivor (the total estate will be above the IHT threshold) it is intended to pay half the appropriate rent that the son and daughter would receive if rented to someone else. Any snags?

[pawncob]

Not really. Search "gift with reservation" for examples

[maths]

Don't think there is any gift with reservation issues. Non-one has gifted an interest in property but still enjoyed the property gifted.

Children have simply inherited 50% of the property of the first deceased parent which they then own with the other surviving spouse.

The surviving spouse, as one of the tenant in common owners, has a right to occupation of the whole property even though children own 50%. Indeed, in principle the children may also possess a right of occupation. The surviving spouse is therefore under no obligation to pay any rent to the children. Any payments to the children purported to be rent may thus simply be interpreted as gratuitous payments (ie gifts).

As an aside, any rental income would of course (if it's rent) be subject to income tax on the recipient.

Property lawyers may correct me.

[Bowler]

Thank you. Although one lives abroad and the other is unlikely to exceed the personal allowance this does not seem to be a worthwhile strategy.