You can’t have your cake and eat it too!
Presumably it could be contended by HMRC
that the children were holding the rented property as bare trustees/nominees,
which would result in the value of the rental property forming part of the
deceased’s estate for IHT calculation purposes.
However, as Andrew Goodman indicates,
provided tenancy agreements have been in the names of the children, rather than
the deceased, this would be helpful in disputing any such contention, despite the
fact that the tenants paid the rent to the deceased.
It seems to me that the income tax position
also needs consideration.
Mention is made of the deceased paying the
rental income (gross or after deduction of expenses?) to the children but also
declaring the rental income on his personal tax return and paying the tax due.
If the children were legal and beneficial
owners but this deceased paid the tax liabilities on the rental income it seems
to me that:
This indicates the children and
the deceased have completed incorrect tax returns and HMRC should be advised
Payments by the deceased of the
children’s tax liabilities (and indeed any property expenses: revenue or capital not reimbursed by the children) were
IHT potentially exempt transfers, in which case IHT claims for gifts out of
income relief needs considering.
Alternatively if the deceased was the
beneficial owner and the value of the rented property therefore forms part of
his IHT estate:
Tax returns will have been
All property expenses should
have been that of the deceased.
The payments of the rental
income to the children were IHT potentially exempt transfers, in which case IHT
claims for gifts out of income relief needs considering.
Andrew M Mortimer