Little-known 'loophole' that could prevent 220,000 Brits paying even more IHT

The number of homes changing hands 'for free' increased by more than 45% to around 220,000 in 2024, according to the Land Registry. It is a trend set to continue, experts agree, as families seek to pass on property to avoid changes to IHT in last year's budget.

Parents who pass down a large asset, such as a to younger relatives are being warned that even if they survive past the crucial seven-year inheritance tax (IHT) exemption period, their family may still face a hefty tax bill.

's IHT rules mean that if someone gifts large amounts of money or property up to seven years before dying, then the inheritance tax portion of the estate, which is set at £175,000, will no longer be taxablbe.

However, there are circumstances where this is not the case and even if the property is given more than seven years before death HRMC will still bill the family for IHT.

explains that this is because 's 'gifts with reservation of benefit' rules.

This is when a person has given away property but still retains some right or benefit over it, normally when they have given away their house to their children and still live there, something increasingly common as asset-rich but cash poor families attempt to avoid IHT increases.

However there is one thing families can do to make sure they do not leave behind an IHT bill. If the person owning the property wishes to gift it but still live there, then they will need to pay their relative a market rent.

This then means the property falls under HMRC's definition of a 'full transfer of ownership', so the person who made the gift has givn up all control or benefit over the property and are not gaining financially by living there for free.

In HMRC IHT speak it becomes a potentially exempt transfer (PET). PETs mean that the seven year rule still applies.

However, if there is any reservation of benefit, the gift will not be considered a PET and may still cause the estate to be subject to IHT.

said: "There are new additional rules to IHT and it is understandable that many families are worried. However, before making decisions regarding large gifts, I strongly advise people to seek advice from specialists in this area of law. Advice may cost some money but this is nothing compared to what might be lost from rash decisions made without professional assistance."