Would appreciate some thoughts on this slightly complex plan for a father to son gift of property.
Father X owned a second home with his wife as tenants in common 50/50. His wife died last year. He now wants to gift the second property to his son Y, but as it was purchased 30 years ago the CGT could be hefty with a straight gift. Ideally he would at least want to own it as joint tenants with his son to remove it from probate and protect it for his son in the future (plus possible IHT savings after 7 years).
As the wife’s RNRB was not used and as it’s within 2 years of her death, it’s been proposed to vary her Will to gift her RNRB amount of £175K as a % of the second home to her son tax free (about 20% of the probate value of last year). If so, the property would be split 80-20 between father and son as tenants in common.
But could the father X then also make a CLT of his NRB amount of £325K as a % of the current value (presumably using a red book valuation), by using eg a discretionary trust for his son, tax free, as below the NRB? Thus increasing his son’s share of the property to nearly 50%?
Would this avoid entrance/exit fees and CGT (could that be rolled over?) And could his son then transfer that % to himself straight after the trust being set up (say within a couple of months), again with no exit fee? The son would then have both amounts, meaning at that point the property would be held as tenants in common at around 55-45% split between X & Y.
X could then gift a much smaller amount needed to make his son’s share up to 50%, with only a small CGT liability (using the same valuation as it won’t have expired, if all done within 3 months). The two could then remove the Form A restriction, and update the title as owning it as joint tenants. Thus making the transfer of half the second home affordable (and protecting it for his son in the future, and removing it from probate).
IF this route would work in practice and be acceptable to HMRC:
- Could the Deed of Variation of the Will, father's CLT into trust, and small extra gift to the son all be done around the same time, with the son almost immediately transferring the part of the property that's been put in trust straight out of it and to himself, so that only one/two sets of forms need be sent to HMLR, to keep things as simple as possible, or
- would each stage need its own set of TR1 etc forms, starting with the RNRB transfer from the Will, and leaving, say, a month between each stage? And would Deeds of Gift and Deeds of Trusts be needed to help clarify this, for HMRC/HMLR?
- Would it be easier to Vary the wife's Will to create a Discretionary Trust for her RNRB 20% amount from the outset, and could that trust then also be used by the father to transfer his NRB % into at the same time/shortly after? Or would that create an exit fee, as the trust amount would be above the NRB with the two amounts added together?
- If each stage should be recorded and update at HMLR, would the TR1 need to state which part was held by the son as tenant in common and which part in a trust? Or just the whole value attributed to X / Y? eg how would it be recorded at HMLR?
Calculating the CGT liability on the smaller gift after the Will variation and after so many years is another headache, but one I’ll leave to the accountants!
Finally, the second home was owned by X and his wife for 30 years, but was not the main residence. It was however never rented out, filled with personal possessions, and they spent a fair bit of each year there, including moving the wife’s mother into a home in a neighbouring village. Would this satisfy the criteria for RNRB? There seems to be no time limit on length of time lived there, only that they used it as a residence, which they seem to have. Seems difficult to prove - would the mother in law’s home suffice as proof?
Hope this makes sense, thanks for any thoughts.