I have spoken to my parents about this matter and my father has asked me to clarify with you if the new inheritance tax rules of 2017 that will include £100,00 per person for the 'family home allowance' means that you can only use this part of the new IHT allowance for a family home and no other assets?
So does that mean if they keep the arrangements we have and do not buy the property back, in 2017 they can only benefit from the £325k threshold for IHT so cannot use the additional £100k to offset other assets in their estate because they do not own a family home?
Their accountant has advised them that if they own a main residence, it will be exempt from IHT in 2017 under the new rules if the family home is £200k (2 x £100k) and this will increase each year thereafter.
So based on this advice, their plan was to remortgage one of their BTL properties and use the funds to either:
-buy another property to live in as their main residence in order to benefit from the new rules
-or buy back the house they are currently renting from us for the same reason.
This is why they want to buy back the property or purchase another property to live in as their main residence so they can benefit from the new rules. If however the increased £100k IHT allowance in 2017 can be used for other assets, not just a family home, then they will keep the current arrangements.
They didn't realise by buying another house or buying back this house that it would fall back into their estate for IHT as their accountant did not explain it to them.
So based on what you have advised, if their main residence falls back into inclusion for IHT, we need to clarify the 'family home allowance' clause of the new rules and if this can only be used for the main residence and nothing else.
I hope this makes sense?