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I ama fraid that if your parents do remain living in the property, for Inheritance tax (IHT) purposes, HMRC will see this as a gift with a reservation (ie the party making the gift retains the benefit of it), and will still treat your parents as owning the property when calculating the value of their Estate for IHT purposes.
Making such a gift is therefore seen as a scam, and won't benefit you or your parents whatsoever in reducing their potential IHT liability.
Unfortunately, there are no magical ways of reducing IHT liabilty on any property, if your parent swish to remain living there.
I hope this assists and answers your question.
Apologies- I thought your parents would remain living in the property they currently own.
From what you have said, such a gift from your parents to you would indeed reduce their Estate for IHT purposes, provided they both survive for 7 years or more from the date the gift is made. Such a gift would be seen as a potentially exempt transfer, and once 7 years has elapsed, none of the value of the property would be classed as forming part of your Parents Estates for IHT purposes.
If they were to die within 7 years from the date of the gift, taper relief applies which means a portion of the value of the property would still be treated as forming part of their Estate, depending when during the 7 year period they died.
I hope this assists and apologies again for my earlier reply.
There are no other downsides of the "triangular arrangement". As long as your parents do not become legal owners of the your propery, which isn't going to happen, then the gift of their property to you will exempt it for IHT purposes after 7 years.
Apologies for not getting back to you. Ok I guess that answers my question. Have you come across this type of an arrangement?
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