In the 1990s a number of Inheritance Tax schemes emerged as property prices soared, designed to allow house owners to give the family home to the children, but carry on living there without offending the ‘gift with reservation’ rules. POAT (pre-owned asset tax) was announced in 2003 to discourage such schemes by imposing a new income tax charge on the value of the benefit from 6 April 2005.

Some 30,000 schemes are said to have been set up before POAT was introduced, but for families who decided to retain the IHT benefit by paying a full market rent for their home, a nasty shock may be in store. HMRC are now claiming that the schemes are totally ineffective for IHT even if rent or the POAT charge is paid, and a test case is under way.