My partner and I want to transfer a property to my son. It is our family home and mortgage-free.  
If we stay in the property once we have gifted sole ownership to my son, will we have to pay rent at the full market rate (we are happy to do this)? Is it correct that if we are both alive for more than seven years post gifting the property, there will be no inheritance tax (IHT) for my son to pay on the house? Furthermore, if the property was to be gifted to my son, at what point do we pay capital gains tax (CGT) if he is now the owner and we just pay rent to live there? What will be the tax implications for my son, as he has been gifted the family home? Is he also able to then go to the bank and remortgage or obtain a mortgage for the property to use to build a portfolio or just have money in the bank to invest in whatever he thinks fit?  

Arthur Weller replies:  

If you gift the property to your son but continue living in it, this will be a 'gift with reservation' and included in your estate when you die (i.e., you will not have achieved anything from an IHT perspective). You can overcome this by paying a market rent for living in it, for as long as you live in the property (see HMRC’s Inheritance Tax manual at IHTM14341). If you do pay full market rent, then seven years after gifting the house, the gift will fall out of your estate and escape IHT. If you have lived in the house for all your period of ownership, you will be eligible for principal private residence relief from CGT when you transfer to your son. After the property has been gifted to your son, he can certainly attempt to get a mortgage on it.