Chapter: 2 - Inheritance Tax Mitigation: The Basics

Some solutions

2.4.2

The above said, there are certain well-established routes, for example:

• Giving the house away and occupying it thereafter for ‘full consideration’.  This may mean either paying a rack rent on a three-year renewable lease on arm’s length terms or ‘buying a lease’ for one’s life expectancy by paying a capital sum (on part of which, the term being likely to be for less than 50 years, the recipient will have to pay a measure of Income Tax): see 5.6.

• Alternatively, if one of the children is sufficiently wealthy, it is possible to enter into the sort of equity release scheme one might otherwise do with a financial institution, whereby he sells the house for full value and then buys back a lease for life (on the standard terms of a tenancy, but without having to pay rent): see 5.7. 

• Further, likely to be more than an option perhaps with a second or holiday home, a person could give away a share in the house and occupy it from time to time with the children, each of them paying a fair share of expenses.  Such an arrangement if properly structured avoids both the GWR and POA regimes: see 5.8.  

• A person might simply sell a large house and trade down for less cash, giving away the balance (after paying off any mortgage) to the children. 

The important point in all this is obviously that relationships between the family and the extended family are happy and likely to remain so. 

One should also be aware of the main residence relief from CGT.  If the house or a share in the house is owned by one or more of the children who do not in fact live there, then the gain will be building up for charge on ultimate disposal by them – except perhaps in the event that they do come and live there and stay in occupation until death.

All this is the subject of Chapter 5.