Chapter: 2 - Inheritance Tax Mitigation: The Basics

The problem

2.4.1

The relentless rise in house prices over the last 20 years or so, albeit more recently  suffering something of a reversal, is a problem not just for the first time buyer but also for the next generation on the deaths of the older property-owning generation.  This is of course especially the case if one (or more) of the children wants to carry on living in the home which may have been in the family for some generations. So, what does one do, other than simply moving out and making a gift which one survives by seven years? 

It was in response to several well-publicised successful attempts to avoid the GWR regime (by making an effective gift for IHT purposes while remaining in occupation) that the POA rules were introduced from 2005/06: see 3.2.2 and 3.2.3.  While there are various planning possibilities open, the overriding concern must be the taxpayer’s own security of tenure if contemplating any form of lifetime gift.  There is an obvious commercial risk in making a gift of the house to the children, even if the donor manages to avoid both the GWR and POA regimes.  If the children then become insolvent or embroiled in matrimonial difficulties the house may have to be sold.  Also, there is probably not much point in entering into an arrangement which might escape the rules on a technicality but which is more than likely to be attacked by HMRC later on.