“This is one of the most common myths we come across,” she says. “It sounds simple, and that’s exactly why it catches people out. Inheritance tax just doesn’t work like that.”
At the heart of the issue is how HM Revenue & Customs views these arrangements. If you give something away but continue to benefit from it, it is not considered a genuine gift. This is known as a “Gift with Reservation of Benefit.”
“In practical terms, if you transfer your home but continue living there rent-free, HMRC will still treat it as part of your estate,” Rachael explains. “The paperwork may say one thing, but the tax position doesn’t change.”
Even attempts to work around this by paying rent can create further complications. Any rent must be at full market value and properly evidenced to be effective.
“A token payment simply won’t cut it,” Rachael adds. “It has to be a genuine commercial arrangement.”
There are also wider risks to consider. Once the property is transferred, it legally belongs to the children. This means it could be exposed to divorce settlements, financial difficulties, or family disputes.
“You’re not just planning for tax, you’re giving up control,” she says. “And that can have serious consequences if circumstances change.”
In addition, the children could face capital gains tax if they later sell the property and it has not been their main residence.
The key takeaway is clear: if something sounds too simple, it usually is.
“There are legitimate ways to plan for inheritance tax,” Rachael concludes, “but they require proper advice and careful planning, not quick fixes.”
