My grandmother has very generously donated her house to me, which is in the UK. However, she continues to live in the house and does not pay me any rent. How could we ensure that no inheritance tax is charged on this gift? 

Arthur Weller replies:  

This is a classic case of a ‘gift with reservation’ (GWR) for inheritance tax (IHT) purposes – giving away an asset but continuing to benefit from it. Under the IHT rules, it is treated as though the gift was never made, and the asset is still included in the donor’s estate when they die. Toensure that no IHT is charged on this gift, your grandmother has to pay you a market rent while living in the house, or move out of the house, and also live for at least the next seven years after she stops living in the house for free (both conditions). See HMRC’s Inheritance Tax Manual at IHTM14301.