Client wishes to gift 50% of her property to her Son who resides with her, never going to leave (51), what are the rules for IHT and the pitfalls to be aware of.
Mike Heelan
St. James’s Place
Hi Mike,
For CGT purposes there would be a connected parties disposal so a sale at market value. Obviously PPR would come in to play and so no tax would be payable but Son would receive his share (presumably tenant in common) at the uplifted value. He would then be entitled to PPR on a future sale.
You then have to consider Gift with Reservation of benefit. The obvious one being - giving away property but continue to live in it.
However, an additional relief was introduced in s.102B(4). S.102B(4) applies where a donor gives away a share of land, but the donor and donee thereafter share occupation of the land. In this instance, if the donor and donee jointly occupy the land and the donor does not receive any other benefit, there is no gift with reservation. HMRC would regard (for example), the donee paying all bills connected with the property as an
instance in which the donor would receive a benefit from his gift. Therefore if bills are shared (or are fully borne by the donor), there is no benefit.
S.102B therefore allows (for example) a parent to give a half share in the family home to a son or daughter and thereafter share occupation with the son or daughter without the gift being a gift with reservation of benefit. S.102B does not require the donor and donee to share occupation on a full time basis – there just
needs to be some degree of shared occupation.
Illustration 4 (taken from CTA notes)
Ann is widowed and owns a house worth £600,000. She transfers a half share in the house to her daughter Jill. Ann continues to live in the house. Jill has her own flat but spends 3 days a week living with Ann. Ann continues to pay her share of all the household costs. S.102B(4) applies. Both Ann and Jill occupy the land. As Ann pays a fair share of the bills, she is not receiving any benefit by reason of the gift to her daughter. The transfer is, therefore, not subject to gift with reservation rules. The PET will be exempt if Ann survives 7 years. However, if Jill stops living in the house, Ann will be occupying the property by herself. S.102B(4) will therefore cease to apply. Therefore unless Ann starts to pay full consideration to Jill for the use of Jill’s proportion of the property, the original gift will become subject to the gift with reservation rules.
Lucy Orrow
Lambert Chapman LLP