Family home ― co-ownership / co-occupation arrangements

By Tolley in association with Emma Haley at Boodle Hatfield LLP

The following Trusts and Inheritance Tax guidance note by Tolley in association with Emma Haley at Boodle Hatfield LLP provides comprehensive and up to date tax information covering:

Family home ― co-ownership / co-occupation arrangements
Anti-avoidance rules
Gift of an undivided share in land ― joint occupation
How much can be given away?
Security of tenure
Second homes

The family home will often be the most valuable asset in a client’s estate and advisors are frequently asked if there are ways to mitigate inheritance tax (IHT) on the home while the client remains in residence.

Various anti-avoidance measures make this difficult. The principal difficulties for IHT are the gifts with reservation of benefit (GWR) and pre-owned assets tax (POAT) rules, considered further below.

Any dealings with the family home must also take account of capital gains tax (CGT) and the valuable principal private residence relief (PPR) in particular. Ideal planning will aim to preserve this as well as reducing the IHT burden, except in rare cases where the home is never likely to be disposed of.

Non-tax issues are paramount and home owners considering a tax mitigation arrangement should be wary of any risk to their continued occupation of the property if this becomes reliant on the consent / co-operation of other family members. Therefore, any IHT planning involving the home should only be considered after alternative options for mitigating IHT have been explored.

For example, the supplementary residence nil rate band (RNRB) is available for deaths after 6 April 2017 where the value of property is inherited by the homeowner’s children or grandchildren. When added to the ordinary nil rate band, this may wipe out any IHT charge on low-value estates and obviate the need for further lifetime IHT planning. See the Residence nil rate band guidance note.

Various strategies for the home have been used in the past and many of these have been far from straightforward. See the Historical schemes: Ingram and reversionary lease schemes and Historical schemes: Eversden, home loan and family debt schemes guidance notes. In addition to IHT and CGT, other taxes may be implicated in the planning, such as stamp duty land tax (SDLT) and income tax.

This note considers sharing arrangements which