I have a new client where the mother (M) sold her bungalow in 2019 and moved in with her daughter (D) and son-in-law later that year. D and her husband had owned the property for several years prior and the property comprised the main house and an integral garage. M paid £58,000 in 2019 to convert the garage into a granny annexe which has its own separate entrance but is clearly attached to the house.
M also paid £100,000 in 2020 to improve the garden, kitchen and utility room of the main house.
The question now is what were these gifts. My thinking is that they cannot be in the POAT regime because the property was already owned by D and was therefore not “acquired” with funds provided by M.
I’m unclear on whether it could be a GROB of the whole £158,000 (or of the £58,000 used to convert the garage in which M now lives) but then it doesn’t seem like this applies as it is a gift of cash.
So that leaves me with the question, is it just a straightforward PET (or rather multiple PETs given the different dates on which the renovation works were funded) and M now just simply needs to survive 7 years from the dates of those gifts?
M seemingly did not have or acquire any legal or equitable interest in the property. Though perhaps remote, she could probably be fairly summarily ejected. It is not for HMRC to argue that she has an interest by way of proprietary estoppel, restitution, or constructive trust in the absence of cogent evidence. The legal estate prevails. That’s what HMRC would say if the taxpayer ran such an argument to obtain an advantage like no TOV as no reduction in the estate. They might argue she has a licence or tenancy at will and so is not excluded from benefit (see1 below).
1 GROB. A gift of cash is not subject to being traced. A GROB is dependent on there being a link to it. Is M excluded from benefit by “contract or otherwise”? Significantly, none of the examples at IHTM14334 is of a gift of cash. Once it is irrevocably given without strings it cannot be enjoyed by anyone save the donee, even if that would be so if M were residing, without security of tenure, in a house she had given away.
If she has some licence or tenacy at will or by sufferance is that really referable to the cash? The garage is more vulnerable in this context. I think HMRC might be suspicious that there was an understanding of a quid pro quo as to the garage but not perhaps the rest. The difficulty here is that the ambit of “or otherwise” is unclear but is ominous from the examples of what little is needed when a residence itself is given. IHTM14333: “It is a question of fact whether the donor was excluded. If they were not, this condition is not satisfied even though the benefits enjoyed were not enforceable.” The snag is that this will not be challenged until M dies. Despite its being a cash gift M’s occupation is factually intertwined. I would say that the worst view is to assume that it is a GROB and act accordingly and let the executors argue it out eventually.
2 POAT. Only the contribution condition could apply and does not because the cash is not used to acquire any land. Cash is intangible property but must be in a “settlement”. Despite the references to income tax settlements, as regards income actual or putative, here “settlement” is defined as for IHT i.e. held in trust and nothing is so held under s43 (2)(a) or (b) IHTA.
3 PETs. The cash gifts will be PETS with, as you say, some possibly varying dates. If they are GROBs there will be a need to resort to double charges relief. If M goes out of residence e.g. into care another PET will occur subject to the same relief. In extremis one might argue (saucily) that there was no TOV under s10(1) IHTA because there was no gratuitous intent as to “any person”, which surely must mean someone other than herself, and unconnected persons might have come to the same arrangements e.g friends or cohabitants. If a transaction has happened it is hard for HMRC to say it is an impossiblity. Postlethwaite v Revenue & Customs [2006] UKSPC SPC00571 is helpful but Nader and McPherson seem against (though are about pure tax avoidance). If the parties wish to find out where they stand now they could go for clearance, see ONSCG. IHT is not explicitly ruled out. HMRC may find some excuse to decline to oblige with any response or just trot out that s10 is not fulfilled and it’s series of GROBs. You will have probably scuppered the chance of naive executors later hoping it all goes through on the nod or at least arguing it out later.