Hello. I am trying to unpick a situation to determine how it would be treated in terms of IHT.
Mum and Dad owned their property. In 1994 given they were becoming infirm, their daughter and SIL moved into their property. To accommodate all parties a large extension was built on the side of the property. Daughter and SIL provided one half of the building cost for the new extension (their half approx £40,000). Mum and Dad in turn transferred their one half share in the property (at that time whole property worth about £65,000) to daughter and SIL. The result was that they each individually then held a one quarter share (as TinC).
Father died in 1998 and gave his one quarter share to daughter (one quarter at that time about £40,000). Mother has just died. Property now worth about £575,000. Trying to understand whether we include Mother’s share as being one quarter of the total current value of the property or whether she has reserved a benefit in a larger share or the whole of the property.
For Mother to have fallen foul of the GWR provisions requires a “gift” in the first instance. Mother appears to have “gifted” a 25% interest in the property to Daughter and SIL. However, no gift would have arisen if the value of Mother’s 25% of the property equated to 50% of the cost of the extension (which
presumably wasn’t the case?).
If the values did not equate and Mother was treated as at least in part making a gift to Daughter and SIL, her estate on death would include the value of that part of the 25% which effectively constituted a gift plus the value of her own 25% absolutely held at her death.
As it seems Mother and Daughter and SIL all occupied the property post the “gift”, depending upon how expenses of the property were treated,
FA 1986 s 102B(4) may in any event prevent a GWR from arising.
Malcolm Finney
Malcolm, thank you for your response.
I would state that the half share in the property for each parent was about £34,000 in 1994 and the daughter and SIL each contributed about £20,000 to the cost of the extension (full cost £80,000). **
I have checked various other provisions. It seems that this particular situation might be exempt from GWR rules as it could be the parents were elderly at the time of the gift and both or at least one of the parents were infirm esp. given that they were 94 and 105 at the time of their respective deaths.*
I am trying to interpret S102 (b) ss(4) as to what this means and whether it could be relevant to my situation.
(4)This subsection applies when—
(a)the donor and the donee occupy the land; and
(b)the donor does not receive any benefit, other than a negligible one, which is provided by or at the expense of the donee for some reason connected with the gift.
The parties shared expenses but no market rent was paid by the parents for their occupation. Would the expenses element be relevant?**
Do you think any element of care provided by the daughter to them assists our case?**
**
If the property was worth in total 68k and the cost of the extension was in total
80k and Mother transferred 50% of her 50% ownership (ie 25% of the 68k namely 17k) in exchange for Daughter and SIL contributing 40K in total (ie 20k each) Mother has not made any gift for GWR purposes (in fact she received more than she gave). Possibly Daughter and SIL may have made gifts for IHT (PETs)?
If no gift for GWR purposes by Mother then no need to satisfy
FA 1986 s 102B(4). As an aside, the issue of who incurred any property expenses and how such were shared out would be relevant to a consideration as to whether (if there had been a gift) s102B(4) could be satisfied; it would also be necessary to ascertain if Mother received any other form of benefit related to the “gift”.
I’m not convinced (again assuming “gift” by Mother) that the care aspect helps although I haven’t checked out the conditions which would need to be satisfied under FA 1986 Sch 20 para 6 which is I believe the relevant section.
If the GWR provisions are irrelevant (or capable of circumnavigation) the PoA provisions need to be examined.
I’m having difficulty on the information provided to come to any definitive conclusions. What paperwork exists relating to the transfer of beneficial interests to Daughter and SIL and to how any arrangements were made as to any agreements between parents and Daughter and SIL (if any) relating the beneficial interest transfers and the funding of the building works?
Malcolm Finney
I think I got bogged down in the issues of principle but then thinking about the actual numbers do you have an IHT problem?
Looking at the numbers, even if Mother owned a percentage of the property absolutely with balance falling within the GWR provisions this means 575k falls in Mother’s estate. Her own NRB (325k) plus her own RNRB (say, for example, 25% x 575k) gives 468,750 plus possibly(?) transfer of husband’s NRB (325k) gives circa 795k (even ignoring any transfer of husband’s RNRB).
In short, no IHT in any event??
Malcolm Finney