This relief is of particular importance for parents transferring properties to their children, which they will use as their private residence. The relief also arises where elderly siblings are living together sharing a private residence and one of them dies leaving their interest in the property to the survivor. A brief summary of the rules applying is as follows:
- The relief applies to a residential property plus gardens up to one acre.
- The beneficiary must have lived in the property as their only or main residence for a period of three years immediately preceding the date of the gift or inheritance. From the 1st February 2007 new rules apply for gifts of the family home from parents to children who reside in the family home with the parents. To qualify for this exemption parents will have to move out of the family home at least three years before they gift the property to their child. This amendment does not affect children who inherit the family home once all other conditions are satisfied.
- The beneficiary must not own or have an interest in any other residential property.
- If the beneficiary is under fifty-five years of age they must continue to occupy the property as their private residence for a period of six years thereafter. If the property is sold within the six-year period and not reinvested in the purchase of a new property then the benefits of the original relief may be taken back. This also applies if the property ceases to be used as the beneficiary’s private residence within the six year period. There are also special rules for dealing with situations where the property is sold to fund medical care or the beneficiary ceases to use the residence because of moving to a nursing home or because the beneficiary is working abroad.
- There is a complete exemption from tax in these circumstances and it does not erode the tax-free threshold otherwise available.
This is a very good relief and of great benefit for planning ways to reduce inheritance tax liabilities.