Avoiding inheritance tax on the family home

[MH]

I have heard that there is a way of avoiding inheritance tax on the home where the home is the sole home of both parent and (adult) child, but have not been able to track down details.

The home is wholly owned by the surviving parent, who lives in it with her adult son. It is the sole home for both of them. Is it possible for the home to be made over to the son to avoid inheritance tax, without it counting as a gift with reservations? Both would continue to live in the home.

[Anthony Nixon]

This is a specific exception from the reservation of benefit rules. It is in Finance Act 1986 section 102B (4) (inserted by Finance Act 1999).

There is no reservation of benefit “when-
(a) the donor and the donee occupy land [this includes any house, flat or other building]; and
(b) the donor does not receive any benefit, other than a negligible one, which is provided by or at the expense of the donee for some reason connected with the gift.”

The exception certainly applies where a parent gives half of his or her home to an adult child who shares the home and each assumes responsibility for half the outgoings on the home.

It is generally thought that the exception is even wider than this. In particular:
 It does not seem to be necessary for the donee actually to share the home as a main home. “Occupation” includes for example a child keeping his or her own bedroom in the parentÂ’s home and visiting on a fairly regular basis, perhaps every other weekend.
 There is no restriction on the donor giving no more than 50% away. The exception probably cannot be relied on for a gift of 100% but a gift of, say, 90% seems to be possible.
 The donee does not actually have to meet any outgoings. The crucial point, in sub-clause (b), is that the donee should not benefit the donor by paying for more than his or her appropriate share of outgoings.

Anthony Nixon ATII
Associate Solicitor
Lester Aldridge Solicitors
Russell House
Oxford Road
BOURNEMOUTH BH8 8EX

Direct Line: + 44 (0)1202 786236
E-mail: anthony.nixon@LA-Law.com
Website: http://www.lesteraldridge.com

[daniboy]

Our 87 year old mother has a simple estate comprised of a house worth 120,000 pounds clear, plus personal effects of perhaps 5,000 pounds. Am I correct in saying that there is no IHT at her death, or even if she gave us her estate before death and died less than seven years later? Can probate be avoided only by her giving the estate away to us or by putting it into a trust? What should we assume for typical probate duration and cost? There is a will leaving her estate to us, and we do have enduring power of attorney.