Giving the family home to the children and carrying on living in it does not work for Inheritance Tax.
- It is a gift with reservation of benefit — HMRC’s rules at IHTM14300 onwards. The house is treated as still in your estate on death, at its value then.
- The seven-year clock never starts. It only begins if the reservation is released, and runs from that date.
- The alternative is the pre-owned assets charge: an annual income tax bill based on the market rent of the home you gave away, less any rent you pay.
- Exceptions are narrow — paying a genuine full market rent on commercial terms, giving a share of a home you truly share while splitting the outgoings, or moving out altogether.
- There are non-tax risks too: your child’s divorce, creditors, and deliberate deprivation of assets.
With a £325,000 nil-rate band frozen to 2030 and up to £175,000 more for the residence band, many couples are already covered to £1m without giving anything away. Check before you act.
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Six short reads each week on tax, Wills, family wealth and running a business, from John Ireland. Since 1996, three decades of protecting families.