PMA Tax: "Give your House to your children to avoid IHT"

This is a great example of the sort of Popular Misconceptions About (PMA) Tax I referenced in an earlier blog post. As I said: "It's more complicated than it seems"

The simple idea is to ensure that the house isn't owned by the parents when they die and IHT becomes payable. It should come as no surprise that the tax rules are wise to this idea.

Firstly the gift would be ignored for IHT purposes of the parents continue to live there. So the House gets caught by 'Gift with a Reservation Of Benefit' rules and is still subject to IHT.

But the position is now probably worse than it was. For example:

1. When the house is sold by the children the gain will be subject to Capital Gains Tax (CGT) unless they happen to live there with Mum & Dad. If no gift had been made there would no CGT if the property was sold shortly after the parents death.
2. The parents security of tenure in what is no longer 'their' property is now vulnerable to any court rulings that follow of their children divorce or become bankrupt.

It's also worth noting that under the current rules no IHT is payable unless someone's taxable estate when they die is more than £325,000 (£650,000 for married couples and registered civil partners).

So if anyone acted on this PMA Tax idea they would simply have created more problems and more tax liabilities than if they'd done nothing. Far preferable to seek out professional advice from someone who really understands the IHT rules and gives this sort of advice on a daily basis. If you want expert IHT advice you will find the ideal tax expert through the Tax Advice Network.