Can we avoid IHT on parents" properties? My parents own their own home and have a second property that they rent out. They are aged 85 and 71. Can you give my family some advice as to how we might avoid paying inheritance tax, or at least reduce the amount we have to pay? Ian Dyall, advice policy manager at Towry Wealth says mitigating inheritance tax (IHT) on estates comprised largely of property - particularly the family home - can be difficult. This is because many of the tax and legislation changes introduced over the past 10 years have been aimed at preventing tax avoidance on exactly those assets. Wealth Questions As with all estate planning, your parents" situation should be viewed holistically, with all the available solutions in mind. It may be that there are actions that can be taken to mitigate IHT without having to include your parents" properties. For example, recent inheritances could be diverted to other beneficiaries or to a trust, using a deed of variation. This would allow your parents to maintain maximum access to their current assets while reducing their IHT liability. These solutions are often overlooked so it is worth taking advice from a fee-based adviser with expertise in this area. The next step for your parents to consider is whether to reduce the size of their estate through increased spending or gifting. Cash flow forecasting can be used to explore how much your parents could afford to gift, not only if everything goes to plan, but also if one or both of them were to require residential or nursing care at some point in the future. Assuming that the properties form the majority of your parents" assets, and gifting is affordable, there are a number of other options to think about. They could consider gifting the rental property either directly to any beneficiaries, or into a trust. If they do this they need to be aware that the income from the rental property would no longer be payable to them. If they need to retain an income, then selling the property and using the proceeds to fund a discounted gift trust may be suitable. This would produce an "income" from the gifted assets and may provide an immediate reduction in their IHT liability. The other key consideration is how much capital gains tax would be payable on the gift, or sale, of the property. While this will be less than any inheritance tax payable on the estate, your parents will need to live for seven years following the gift before the value of the property is "free" from IHT. If they were to die within this period, they would trigger a capital gains tax liability, which would otherwise have been exempt on death. Assuming downsizing - selling up, buying a smaller house and gifting the extra income - is not being considered, saving IHT on the value of the main residence is more problematic. While there are still schemes available which aim to help individuals to save tax on their family home, the government have been quick to attack any schemes set up within this area in the past, sometimes with retrospective effect, such as the introduction of Previously Owned Asset Tax in 2005. Some advisers would suggest remortgaging to release money which could be gifted, but we would strongly urge you to be cautious about this approach. If you were to die shortly after making the gift the set-up costs would outweigh the tax saving. If you live too long then the interest payments and other costs would outweigh the tax saving. So there is a window in time in which you would need to die in order for the planning to work, and this window can be surprisingly short. The best option with the main residence may be either to accept that there will be a liability, or to pre-fund the liability by using a whole-of-life assurance policy written in trust. This can be an efficient way of paying the liability and has the added advantage of providing money before probate being granted, which can be used to pay the IHT liability.