Widow transfers house to 3 children in 1999 and dies in 2017. There is no IHT either way, but a large CGT bill arises on the sale if it was an outright gift.
The children say it was done for care fees and mother’s security-but it was not intended they take their inheritance until after her death-rather conflicting.
Other evidence from the solicitors who dealt with the transfer is awaited, but there may be nothing after all this time.
Has anyone ever succeeded in an argument that this was a constructive trust, with a life interest/right of occupation for the mother, rather than a gift? There would be no IHT, but a considerable saving in CGT.
Yes, I have “argued” a constructive trust in these circumstance on a number of occasions, successfully. In fact, I have never had to “argue” the point and have never had any dispute from HMRC. If it is necessary to claim PPR on the property (which will depend on the circumstances and the terms of the implied trust) then in the past I have written to HMRC to explain the circumstances and ask them to set up a trust record. Now in the age of the TRS I suppose we would just register the trust like any other.
In some case, having spoken to the family, it has been clear that there was no intended gift at the time of the transfer of the property to the children – just a belief that it would void care fees – in which case the children hold on bare trust for the parent. More commonly there will be an intention that the property belongs to the children but with the parent entitled to live there (a life interest), but if it was set up pre 2006 and the parent lived in the property until death there is no need to claim PPR, because there is an automatic uplift on death, so there is arguably no need to declare anything to HMRC.
There is also some helpful support for this treatment of these arrangements in the HMRC manuals (I recall in the PPR section in relation to trusts, but haven’t checked).
I like to look at these arrangements without looking at the tax position, the tax conclusion should follow the actual event and not be designed to fit the facts… (tax tails and dog wagging and all that).
So, if the facts are that widow lived in the property for nearly 20 years, what was the basis of her occupation? Did she pay rent? Was she responsible for repairs etc… If the children had predeceased, would the grandchildren have inherited. Did any of the children ever claim an interest in the property, or were they effectively only ever holding a remainder interest?
I can see why HMRC would accept the argument that PPR should apply in some circumstances, but perhaps not in others.