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We do like to be beside the IHTside

With apologies to John A. Glover-Kind (the author according to Wikipedia of the original version in 1907) this piece is about holiday homes. And not only ones by the sea.

One of the problems with IHT planning is the rule on "gifts with reservation of benefit". Broadly, if you give something away and continue to benefit from it, the asset is treated as remaining in your estate for IHT purposes so the gift is of no IHT effect.

However, what's not as widely known as it should be is that "sharing" arrangements can offer a way round the "reservation" rules. This is because the rules don't apply where the donor and the donee(s) all "occupy" the property and the donee(s) do not meet more than their share of the running costs. In that case the normal IHT rules apply meaning that in most cases the gift will be a potentially exempt transfer which will escape IHT provided you survive for seven years from the date of the gift.

In this context the published views of HMRC (albeit published in their guidance on the income tax charge on pre-owned assets rather than directly on IHT) are helpful: it should be sufficient for all the owners to have means of access, to store possessions and to stay in the property from time to time. Such conditions may be relatively easy to fulfil in respect of a holiday home.

It would, of course, be necessary to consider the capital gains tax implications of any such gift but in the right circumstances it may offer a route to IHT mitigation. This is likely to be of increasing interest with the freezing of the nil rate band until 2014-15.

If you have clients who would like to "...stroll upon the Prom, Prom, Prom!" then please contact Terry "Kiss Me Quick" Jordan on 020 8922 9360 or by e-mail at terry.jordan@bkltax.co.uk.