With everyone now casting around for ways to reduce IHT, after the tax grab on Pensions, remember the family home could now become the taxpayer's best counter-weapon...
Don't forget the perfectly legal UNDIVIDED SHARE wheeze, otherwise known as FA 1986, section 102B(4)...
By using it, one could stay in your home, but reduce its value for IHT purposes by more than
(n)/(n+1) % of its actual value, where n is the number of people, e.g. children, you share it with...
https://taxbar.com/wp-co...Live_There_Patric-1.pdf
https://genusplan.co.uk/...-30-Main-residences.pdf
NB: DON'T do this as a DIY. Obtain specialist advice. IANAL.
Plain language example I found:-
Quote:The legislation states that if an individual makes a gift of an undivided (meaning not the whole thing!)
share of his main residence to another person and continues to reside at the property, the gifted share will not be caught by the GROB rules so long as the criteria listed below are adhered to.
1. the donor must gift a share but not the whole of their main residence
2. the recipient must be an ‘occupier’ of the property
3. the donor must continue paying at least their own share of the outgoings
4. these criteria must be adhered to until death (not just 7 years)
5. the gift must be absolute, i.e. not in trust
Gift of an undivided shareIt is important to highlight that for the concession to the GROB rules to apply, the client must only gift a share of the property to a chosen beneficiary absolutely and retain some benefit.
This means that technically, the donor could retain just 1% of the property after making the gift but it is worth noting that HMRC is likely to challenge any person making a gift of more than 50% of their property as they deem the disposal of more than 50% as aggressive tax planning.
Nevertheless, this is all within the legislation.
OccupationNoting the recipient must ‘occupy’ the property to avoid the GROB, this is an easy test where the
occupier lives there full time. It should also be noted that it is possible in the eyes of the legislation to occupy more than one property at the same time.
The test as to whether somebody is occupying is clearly fundamental and where the occupier usually lives in another property, then the test as to the occupation is always going to be an evidential one.
The test is likely to be satisfied where, for instance, there is a gift of a share of the main residence to a child who visits the property on a regular basis, is able to come and go as they please, have their own key and leaves their possessions at the property.
There does of course need to be more than mere storage of items at the property and so an occupier having their own bedroom and being able to come and go as they please would certainly make the test easier to satisfy
https://www.countrywise....n_to_the_GROB_rules.pdf
Another example
https://uk.jha.com/insig...n-of-benefit-provisions [Example 6]
More insights
https://www.charlesrusse...ed-ownership-exemption/
It gets better. I understand HMRC accepts that a half-share of something is worth
less than half the value of the whole. For a Principal Private Residence share, I understand the Revenue accept a 15% discount on the value of a share.
e.g. £1m house. Parent(s) give a half-share to a child. The share retained by the parents is discounted in value by 15% to £425k.
So £575k has in fact been removed from the estate for IHT purposes, provided:
a) the conditions listed above are adhered to, and
b) the donor survives 7 years, and
c) the arrangement continues until the donor's death
IHTM14332 states:
Quote:Note to the joint property examplesThe joint property examples are on the basis that the joint owners take the property in equal shares. Refer any case in which the transferor takes less than an equal share to Technical.
https://www.gov.uk/hmrc-...ce-tax-manual/ihtm14332
implying, the more sharers (children) you have, the more of the value of the property will fall out of the scope of IHT. [Obviously there may be practical limitations; e.g. family proximity, amity]
Illustrative Numbers (AIUI, DYOR)
£1m house (shares, including the donor), ignoring NRB
Shares........IHT saving
2.................£230k
3.................£286k
4.................£315k
5.................£332k
edit: fixed the links