I have been asked an interesting question, and apologies if this has been covered before or if I am missing something obvious.
If a husband and wife own their house jointly (no mortgage), and also have cash in the bank equivalent to the market value of the property (more in fact), can they gift sums of money equally to their three adult children to the total value of the property thereby allowing the children to purchase jointly the property from them (at fair market value) and they keep living in it until death?
Assume the children are aware and accept implications for SDLT and CGT (when the property is eventually sold).
I feel it should not be classed as a GROB as they are not gifting the property, and therefore they would not need to pay rent.
The monetary gift would obviously be a PET, but are there other implications?
Would HMRC have scope to argue that the property should be brought into their estate for tax purposes?
Not apparently a GROB because there are no substitution rules for a cash gift but surely the GAAR could apply. If the gift of money and purchase are components of an overall plan can it reasonably be regarded as a reasonable course of action? The circularity is blatant even if the money is actually transferred into the children’s bank account and then back again rather than just on paper, such as a DOT of the cash and purchase contract offsetting the two so no money actually moves, which is definitely not recommended. The counteraction would presumably be to regard the operation as a gift of the property itself. Leaving a very long period of time between the two events would be more likely to pass muster if there were a genuine risk that the purchase would not go ahead.
There is also an argument that it is a gift of the property by associated operations under s.268 IHTA, which can include a transaction for full consideration. This provision is usually invoked to argue that an operation is a disposition where it would not be if it stood alone but I see no reason why it should not be employed to identify what is disposed of.
I suspect HMRC’s credulity would be stretched by an argument that there was no agreement that one step would follow the other in the absence of a long interval. A non-binding understanding is sufficient for an “arrangement” to obtain a tax advantage.
I agree. A loan is not caught, even if interest-free: IHTM44005. But then forgiving repayment or later giving cash to facilitate it might well be an indirect contribution.
The safe haven would be to come within s.102B which attracts a POAT exemption. It also achieves a 15% discount in valuing the retained interest. But if the donor occupies exclusively full consideration must be paid.
The strategy appears to be to make a PET but not of the cash. IHT planning centred around the residence you plan to live in indefinitely is fraught with pitfalls, most deliberately dug by the legislature. POAT is a sinister example, especially as the de minimis ÂŁ5000 disregard has been made virtually redundant by general market rent increases since 2004. Even the original plan would involve loss of the CGT PPRR on subsequent appreciation in value.
The cash cannot be given and loaned back because of s.103 FA 1986.
Fancy schemes involving the main residence are doomed to failure. The worst of them are sold by scheme merchants who sell lifetime settlor-interested trusts which are actually detrimental compared with the status quo. This simply highlights the fact that despite RNRB current residential property values and a frozen NRB since 2009 mean that IHT is a nice little earner for HMG because the tax is much harder to avoid than for those with larger and more liquid estates.