My friend's Dad had to go into a care home.He signed his house over to her,on the understanding that his long-term partner stayed there until her death.This was the case for several years.She paid her own bills,but no rent.Was this also breaking the law then,or did the fact that they were not married make it ok?
It seems like a grey area,I think it is allowed in some countries like France.
It's not breaking the law, it's a matter of what inheritance tax is due.
If you give something away, after seven years it's no longer part of your estate for inheritance tax purposes.
But if you don't really give it away (technically if you do it with some kind of reservation) it stays as part of your estate (even if you don't own it - which can be very awkward if there's some tax for the estate to pay and there's not enough in the estate any more).
When someone gives their home away, but carries on living there rent free, they haven't really given it away, so it remains in their estate for tax purposes.
The situation you describe is clearly a reservation, but it shouldn't be an issue for tax - the beneficiary isn't the person making the gift (unless there's a lot of other complicating factors).
Problems tend to arise when the "understanding" (which tends to be unwritten because people are scared of tax issues) breaks down.
Again, an alternative approach might have been to gift the property to both the daughter and the partner as joint owners, but that does introduce an issue if the daughter dies before the daughter and has a will that could divert the property away from the family.