The following Trusts and Inheritance Tax guidance note by Tolley in association with Charlotte Kynaston provides comprehensive and up to date tax information covering:
The family home is often the largest asset in the estate and is frequently an obstacle to effective estate planning.
The simplest approach is usually for the client to sell their home and downsize to a smaller property. They can make use of principal private residence relief for capital gains tax and release funds to make potentially exempt transfers (PETs) for IHT purposes. See the Outright gifts guidance note.
However, many clients want to remain living in their home until their death. In this case, it will be difficult to give away the home without getting caught by the gift with reservation (GWR) of benefit provisions or the pre-owned asset tax (POAT). During the 1990s and early 2000s, a number of schemes and arrangements were devised to avoid these provisions and still remain living in the home.
See the Gifts with reservation ― overview and Pre-owned assets tax guidance notes.
The introduction of the transferable nil rate band in 2007 rendered such planning for lower value estates less important. Planning will become even less relevant with the introduction of the residence nil rate band for residential interests in estates worth not significantly more than £2m. See the Nil rate band and the Residence nil rate band ― main provisions guidance notes.
Nevertheless, tax practitioners will still encounter schemes which were set up years ago. The guidance notes on historical schemes provide some background information on how the schemes worked and what their current status is.
This note examines two schemes which sought to give away an interest in the family home while remaining in occupation of it. They made use of the fact that it is possible to have a number of distinct legal interests in one physical property.
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