By John Whiting PricewaterhouseCoopers

Inheritance Tax (IHT) is an ever-greater worry to many people.

However, in many ways it is a simple tax.

The assets you leave when you die are valued and of the amount over �250,000, IHT at 40% is due.

Gifts to a surviving spouse or to charities are outside the net in the main; most business property attracts significant reliefs.

But leave say �350,000 to the children and tax will be due at 40% of �100,000 - a nasty bite of �40,000 out of the nest egg you were trying to leave behind.

Pets

Basic IHT planning is all about giving something away and then surviving seven years - the point being that if you give something away it is a 'Pet' (Potentially Exempt Transfer).

Survive seven years and it is outside the reach of IHT; die within that period and IHT will bite but the bite may still be less than it otherwise would be.

There are various small exemptions as well - such as a �3,000 annual exemption, various marriage gifts and 'normal expenditure out of income'.

Grobs

A key problem with IHT is the difficulty of giving away the property that someone owns and lives in.

Many people are now living in properties that will automatically put them into the IHT bracket, even before other assets are taken into account.

This starts people thinking about giving the property away but continuing to live there.

Although this might appeal as a solution, it does not work for IHT because of the 'Gifts with Reservation of Benefit' rule (Grobs).

This rule says if you give something away and still use or enjoy it, the asset in question is still treated as yours for IHT purposes.

So if you give your house to the children now and are still there in 20 years when you die, it would count as part of your estate for IHT purposes.

You can escape the clutches of Grobs by paying a market rental.

That might not be very attractive, not least because that would be taxable income for the recipient.

You would not be caught if you gave the children the property, moved out but just paid them a few visits.

The legislation talks about the property being "enjoyed to the entire exclusion or virtually to the entire exclusion" of the person who gave it.

But give them a holiday cottage that you then stay in for a month every year rent-free and we are in Grobland.

There is a small get-out - if the person who gave the gift became unwell and had to move back in to be taken care of - but even this is hedged round with conditions.

Mother to child

There is another possibility which can help where perhaps the mother owns the house and her child lives with her.

If the mother gifts a share of the house to the child and both continue to live there, that will not be a Grob as such.

The gift would probably be of a half share, but does not necessarily have to be.

The key is that both continue to live there and there is no agreement that the daughter will pay all the running costs for instance.

This clarification - outlined by a Minister in 1986 and clarified subsequently by the Inland Revenue - stems from a longstanding Estate Duty practice but even this needs care.

And it does not get out of IHT as such - after all, give half the house away and die shortly afterwards and IHT will bite, Grob or no Grob.

But at least you are starting to gift, so it will be a possible route in some circumstances.

Of course there are many other planning ideas to consider - such as using trusts and generally how one holds a property.

Do you and your spouse or partner own the house as 'joint tenants' or 'tenants in common'?

The former means that the survivor inherits the full property, the latter means each co-owner has their own share which can be left to whoever each wishes.