Hello and thanks for using Just Answer.
My name is Al and am happy to assist you with your enquiry.
It is probably easier if I set out the general rules concerning IHT, rather than answering your numbered points in order, if that is OK.
The nil-rate Inheritance Tax band is currently £325,000, which means that they have a tax free Estate of £325,000 and tax is only payable on any amount over this sum at a rate of 40%. Couples have a tax free joint Estate of £650,000 so on the assumption that your friend's father has already died, they share a joint tax free Estate of £650,000 and therefore if father had not used up any of this amount on his death, there will be a tax free Estate of £650,000 when mother dies.
For IHT purposes, the value of someone's Estate not only includes any property they own at the date of death/monies in Bank accounts etc, but also any gifts that have been made within 7 years of their death. As regards lifetime gifts, if a party were to die within 2 years of making a gift, the full value of that gift is counted as forming part of their Estate and is taxed at 40%. Gifts made between 3 and 7 years attract a lesser sum on a sliding scale. Therefore, if mother were to sell the property and gift the proceeds, this would be of no benefit to her family if she were to die within 2 years.
There is also no special Trust fund that can be set up by mother to prevent the proceeds of sale being counted as part of her Estate for IHT purposes.
I'm afraid therefore that there are many obstacles that prevent a saving of IHT in a case such as your friend's. If mother were to gift the property away to her family but continued to live there until she passed away, the reservation of benefit rules means that the value of the property would remain in her Estatee for Inheritance Tax purposes.
Each person has an annual IHT allowance to make gifts of up to £3,000 per year, so mother could benefit from utilising this allowance, but it isn't going to save her a lot!
If the property is sold after mother passes away, its full value is used and forms part of her Estate for IHT purposes.
I hope this assists and gives you a good overview of the position.