Tax Question:

A family home is owned jointly by a husband and wife , who's joint estates will exceed any nil rate band, they wish to gift the property in their wills to one or more of their children.

would there be any inheritance tax benefit if they first let part (rooms ) of the property to one , or more of the children, in terms of this diminishing the value of the property for probate purposes , (as vacant possession could not be readily obtained) ?

Would it make any difference whether the rent payable was a market rent or a below market rent ? would it make any difference if the letting was to to a person or entity not a beneficiary of the property under the will ?

Answer:

Yes, in theory the parents could grant tenancies to the children which would reduce the value for IHT purposes. If however the tenants were beneficiaries of the will and would inherit the property then it is likely that when valuing the property the marriage value of the lease and the freehold would be taken into account (ie as the child is the leaseholder and is inheriting the superior interest, the lease would be extinguished on the acquisition of the freehold.

The value of the freehold would therefore not be the restricted value as the "hypothetical third party" would pay a premium for freehold even with the tenancy.

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