Tax dodge of the week: how sharing a home with the kids can save on IHT tax

By Contributing editor Emily Hohler Nov 29, 2005

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Prior to the introduction of the ‘gifts with reservation’ rules, people used to give their assets away, yet still enjoy the use of them, says the Schmidt Report.

That is no longer possible and any ‘sidestepping’ of the rules will no longer fool the taxman. There is, however, a way around this.

If you do find yourself living in a house that is far too big for you, it is perfectly legitimate to give away, say, half the house to the children, or one of the children, tax-free, provided that the child or children in question come to live with you and share normal outgoings.

The problem never need arise if your estate counts as a working farm (these are exempt from IHT) – even if you don’t actually farm yourself. Remember, though, that as a landlord, for agricultural property relief to apply, you need to have owned the property for at least seven years.

Investing in business property is also a very effective way to save on IHT: shares in a trading company get 100% relief and so are ignored when it comes to calculating your IHT bill. For the relief to apply in this case, you need to have owned the asset for at least two years.

Published in Personal finance | More articles by Emily Hohler

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