Executor to an estate where it transpires a rental home owned by the deceased has been rented out to a nephew at a below market rent for 15 + years. The deceased has never lived in the home. My question is does that constitute an annual gift and therefore disclosable for IHT purposes or is this merely a bad commercial arrangement struck. The nephew in question is a beneficiary of the will.
Not sure of the reason for the question, though possible a misunderstanding of GWR and renting out property. Maybe a visit to a suitably qualified professional is in order.
But, the rent is taxable income so a Let Property Campaign Disclosure may be required to date of death.
The property is part of the estate for IHT.
It is not clear whether the nephew was initially granted a lease for 15 years or has been allowed to live in the property and his stay has lasted 15+ years
1 A lease for 15 years or whatever at below market rent is an immediate gift for IHT but it is a PET and if the lessor has lived for more than 7 years there are no IHT consequences. Provided the lessor has never lived in the house or stayed there other than very occasionally there will not have been a gift with reservation. It is possible to make a gift by omitting to exercise a right but if the nephew has security of tenure against his uncle that will not arise until the lease ends and the tenant is allowed to stay on; or is granted a similar lease which will be another PET.
But there was a disposal for CGT at a deemed premium (because less than market rent payable) when the lease was granted, If this was not returned properly there may be an historic underpayment of tax
2 A gift for IHT requires that the grant of the lease should reduce the value of the lessor’s estate. If the lessee has no or a very short tenure that reduction will be nil or small, so no gift. There will not be a gift by omission because no value is transferred to the lessee; the lessor can recover the property on short notice. IHT does not work to catch an omission to take a rent or a higher rent or a premium or a bigger one. It taxes reductions in value not failure to add or maximise value. For CGT any deemed premium forgone will be small.
This is an outline of the issues. We do not give advice on here. As Karl says you need detailed specialist advice.This contribution is made as it may be of interest to other Forum members.
Jack Harper