Client owns a holiday property worth £400K. There is a large uncrystallised capital gain.
At the moment, it is rented out for holiday lets for part of the year. The client also uses it occasionally, usually for family holidays with her adult children and the grandchildren. Ideally, the client would like to remove the value of the property from her estate for IHT purposes, postpone any CGT on the disposal, and carry on using the property on an occasional basis, as she does now.
It has been suggested that part of the property could be transferred into a discretionary trust, with the client retaining the remaining share. The intention is to ensure that the loss to the estate is less the NRB to avoid a lifetime charge to IHT.
CGT holdover relief would be claimed on the transfer into the trust.
The expenses and rental income would be divided proportionately in accordance with the respective shares owned by the client and the trust. However, I still have a concern that this arrangement would be caught by the GROB rules. The exception in s.102B(4) FA 1986 does not appear to apply as the trust (as donee) cannot be said to be ‘in occupation’. What do forum members think please?
Also, if the client continues to use the property for the odd week here and there, is that okay as long as it is in proportion to the share of the property she has retained? Or to be on the safe side, should she pay a full market rent for those weeks to avoid both GROB and POAT issues?
I must admit I have always thought that FA 1986 s102B(4)(a) “the donor and the donee occupy the land” has meant that a settled property is a gift to trustees who are unable to occupy the property. Hence a gift with reservation.
HMRC have commented on the de minimis provisions which include a comment as follows:
“… if the benefit to the donor is, or becomes, more significant, the GWR provisions are likely to apply. Examples of this include gifts of:
a second home or holiday home which the donor and the donee both then use on an occasional basis;…”
Thanks Malcolm. I agree in relation to s.102B(4) FA 1986.
If the donor was not occupying the property at all, I cannot see that there would be a GROB as long as she paid at least her share of the expenses and the rental income was split in the same proportions as the beneficial entitlements. Do you agree?
If the donor does then want to use the holiday home, paying a full market rent for those weeks seems prudent to avoid any notion of a GROB.
Given that FA 1986 s102B(4) is not satisfied and assuming the donor will occupy the property from time to time to avoid a reservation of benefit I’m not sure that the running costs of the property should necessarily be split in line with the % ownership. I think that for periods where donor not in occupation the associated running costs should be split 50/50 (or donor pays for all). For periods of occupation by the donor then a market rent payable to donee would be a suitable precaution.
Regarding any one-off major refurbishment works perhaps contributions in line with their % ownership would make sense.