I have a probate matter where a married couple sold their property and used the majority of funds to purchase a new home, which is a shared ownership with a housing association whom they pay rent to. They gifted the remaining funds to their daughters, who invested the funds in a bank account in the daughters’ names, and the income produced from those funds pays the rent to the Housing Association.
Is this a POAT? If so, will I need to declare this on an IHT400? The gross estate for husband is circa £170k, and net estate is circa £164,500 and so are otherwise not taxable.
I do not yet have the information regarding how much rent was being paid to the Housing Association, but from my research, I understand that there is a de minimis amount of £5,000 under which the POAT charge is ignored. Is this correct?
Unfortunately, wife died March 2023 and now husband has died December 2023 and we are dealing with the husband’s estate. Another firm has dealt with probate for wife’s estate and we are instructed only to deal with the grant of probate application in husband’s estate by lay executor (son-in-law).
The first question to ask is whether the entire contents of the bank account are a GROB by the parents! s102(1) (b) talks of not being entirely excluded from " a benefit by contract or otherwise". An agreement for the rent to be paid as a condition of the gift would be fatal but “or otherwise” is the problem. Associated operations also need to be considered:IHTM14338.
The counter argument would be that the daughters are under no obligation to pay the rent and are free not to do so so the payments are simply gifts by them. To stand that up HMRC will look at the parents’ remaining available resources. If they depend completely on their daughters paying, it will be a dead duck. Even partial dependence is unsafe because the value of the benefit is not required to be proportionate provided it is not minimal and so virtual exclusion:IHTM14333 and para 6(1)(c) Sch 20 FA 1986. Para 6(1)(b) only applies where the reservation subsists in land not cash.
Regular payments of rent will mean the 7 year period keeps being extended. It is far from clear, in the absence of a mutual agreement to stop, when if at all the reservation ceases resulting in a PET or what value that transfers when the property subject to the reservation is cash in a bank account that is depleted by drawdown or closed altogether.
If the parents use their own resources to pay their rent it might be possible for the daughters to top up those by later occasional gifts without associated operations especially if there is no obvious link between the original gift and the funds used to do so. The milk is spilt but it might have been better for the parents’ to pay the rent and then make PETs to the daughters whenever they felt able to do so, using annual exemptions and normal expenditure out of income.
It is wrong that the annual exemption has not been raised in line with inflation.The daughters’ own payments might well fall within s11 IHTA.
Even if the original gift is not a GROB POAT is not in point because it was of cash and not land, a chattel, or a settled intangible.