Inheritance tax has always been regarded as the most hated tax, despite the fact that relatively few estates (less than 5%) actually pay it. Thus, an increase in tax receipts this year is still unlikely to affect the vast majority of families in the UK.
Nevertheless, as the article below discusses, for those for whom the value of their houses or other assets is likely to bring them within the IHT net, making gifts to their children while they are still alive may be a good idea. Whether a donor makes a "potentially exempt transfer" (PET), and survives for seven years afterwards so that the gift passes tax-free, or uses an exemption such as that for regular gifts made as "normal expenditure out of income", which have no limit provided that they do not adversely affect the donor's standard of living, it is possible to pass substantial sums to children or grandchildren without incurring an IHT charge.
However, what people sometimes forget in their enthusiasm to avoid IHT is the need to consider their own needs and possible changes in their (or their family's) circumstances. Parents have given their children valuable property only to see much or all of it disappear as part of a financial settlement on the child's divorce, or to the child's creditors following their bankruptcy.
The most difficult cases often arise in connection with the family home. As this is the most valuable asset many people own, they may try to give it to their children as a PET while they are alive, while continuing to live there themselves. Whether a parent survives for seven years or not, such a gift is only valid for IHT purposes if the parents pay a market rent to the child to live there. Otherwise the gift will fall foul of the rules relating to "gifts with a reservation of benefit" whereby, as the name implies, the donor is regarded as retaining a benefit in the property by continuing to live there rent-free.
As the need for rent to be paid is often overlooked, such gifts tend to be unsuccessful for the purpose they are intended, and are likely to result in additional IHT and capital gains tax costs following the donor's death. Even worse, however, there have been cases where parents have found themselves homeless and, in some cases, almost penniless, as a result of an unscrupulous child selling their house out from under them.
For all the above reasons, and for other less hair-raising ones, IHT planning should never be undertaken lightly or without specialist tax advice.