I'm 80 and want to move in with my son and his family, will it create a tax trap?

My wife and I are 80. What are the tax implications and pitfalls, if we sell our house and buy another jointly with my son and his family in order to live together? What can we do to mitigate these? A.S, via email

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Harvey Dorset, of This is Money, replies: Moving in with family can help people see enjoy their later years in comfort, with the help they need along the way from loved ones. Having grandparents on hand can also be a vital help for working parents too.

Intergenerational living won't be without its tricky moments but it is a great way to spend precious years together as a family and see more of your grandchildren.

It also allows families to pool their financial resources and potentially get a home, space or location, that they might not be able to alone.

You are right to check up on the tax implications though, as this kind of joint ownership can have an impact on everything from stamp duty to inheritance tax.

You don't state how much your existing home is worth or what the new one will cost. The financial advisers we spoke to explained this will make a difference to whether you need to worry about inheritance tax and how complicated things may be.

Ian Dyall, head of estate planning at Evelyn Partners, replies: The two taxes you need to be aware of are inheritance tax and a form of income tax called 'pre-owned asset tax', which was introduced in 2005 as an anti-avoidance measure to target people who were managing to sidestep the inheritance tax rules.

Let's talk about the principles of inheritance tax first and then we can apply it to your case.

If you reduce the value of your estate by making an outright gift, that will only be effective in reducing your inheritance tax liability if there is no 'reservation of benefit'.

You also generally need to survive the gift by seven years before it ceases to be included in your estate unless it is covered by one of the exemptions.

A reservation of benefit occurs where you continue to use or benefit from an asset that you have given away, for example giving away a property but continuing to live in it.

In your case, whether there is a deemed lifetime gift for inheritance tax will depend on who pays for the new property and how it is owned.

If you take the proceeds of your current home and use it to help purchase the new property, but the property is owned solely by your son and his wife, then a gift has happened for inheritance tax purposes.

However, if you then live in that property rent-free, it is likely to be treated as a reservation of benefit for inheritance tax purposes. The value would remain in your estate and will be liable to IHT on death, irrespective of how long you live after making the gift.

If the new property is co-owned with your son in proportion to how much each of you have contributed, then there would be no gift and only your share of the property would be liable to inheritance tax on your death.

If the property were solely owned by your son and his wife, you could avoid the reservation of benefit by paying a market rent for your use of part of the property.

You would need to get a professional to determine a fair rental value of your use of part of the property, and your son would be liable to income tax on the rent, but in some cases that may be worth paying if you think you are likely to live seven years but not an excessive period beyond that.

If you no longer own a share of a property on death, you may be worried that you will lose the 'residence nil rate band', which is an inheritance tax allowance that can be used if you leave your home to your children and grandchildren on death.

However, 'downsizing provisions' exist to allow people to downsize or sell their home later in life without losing the allowance, so you should not lose any of the allowance that you would have been entitled to.

Patrick Haines, partner at Partners Wealth Management, replies: There should be no tax issues (other than potentially stamp duty) on the planned move to the new 'family home'.

For inheritance tax purposes, you may have available a tax-free nil rate band each of up to £325,000 and an additional tax-free residence nil rate band each of up to £175,000 (certain conditions apply to the latter).

This can provide a tax-free estate of up to £1million.

Where your estate is valued within the above limit, there may potentially be no inheritance tax due on your estate on the last to die and your son and family could ordinarily live with you in the meantime without any tax implications. A properly drafted will should be arranged.

For larger estates, inheritance tax is usually payable at 40 per cent on your estate in excess of these allowances. In this case, there are further considerations and these relate to how the property is legally owned from outset and also your life expectancy.

To meet your objectives, the ownership of the property in this case could be arranged as tenants-in-common where you will typically own 50 per cent and your son would own the other 50 per cent.

We would recommend an equivalent sharing of the running costs as well.

You could then take advantage of a co-ownership discount, which HMRC permits where the co-owner is not a spouse or civil partner. Your son can remain in occupancy for a discount to apply.

On the successful application following the death of the 50 per cent co-owners, a discount of up to 15 per cent of the value of the deceased's share can be applied. The other 50 per cent owners would continue to own their share.

In our example, if you as parents pass away within seven years, the 50 per cent share you have given to your son on the purchase of the new property would fall back into your estate.

Where the total estate value exceeds the available nil rate bands, then inheritance tax may be due on the excess.

The gift to your son of the 50 per cent share is called a potentially exempt transfer (PET) and this gift will fall outside your estate for inheritance tax if you survive a seven-year period.

For 'failed PETs' where the 50 per cent gift to your son is in excess of the available nil rate bands of £325,000 each, taper relief may apply to the excess which can reduce the tax payable.

Be mindful that the inheritance tax on any failed gifts might need to be met by the beneficiaries.

Inheritance tax on jointly owned property is rarely straightforward and whether or not tax has to be paid will depend on several factors, including the status of the person inheriting and their relationship with the deceased, how the property was jointly owned, the type of the property concerned and details of occupancy.

Caution: tax planning around the main residence and joint property ownership can be fraught with danger, particularly where circumstances change or relationships deteriorate so professional legal advice from a qualified solicitor is strongly recommended.

Ian Dyall adds: If you sell your property and give the cash to your son who uses the money to buy a property in his name, which you then live in, there is an argument that the reservation of benefit rules do not apply.

In this case you could be liable to pre-owned asset tax. This is an income tax charge paid annually on the perceived value of your occupation of the property.

You can avoid it by electing to have your contribution towards the property treated as a reservation of benefit, or again by paying a market rent.

Its application is complex and it is easy to unwittingly fall within the scope of the tax through actions driven by motives unrelated to tax planning.

The bulk of UK wealth is held in people's homes, so successive governments have made it difficult to mitigate the inheritance tax liability on your main residence, introducing new legislation to block loopholes when necessary.

If your share of the new property is worth less than the proceeds from your existing home, then planning with the funds you have released by downsizing may be the simplest approach to mitigating inheritance tax.