A widow owns 100% of her house. She gifts 45% to son and 45% to daughter, so only owns 10%. Both son and daughter live in the house and the widow pays all outgoings, so we can assume all co-ownership conditions are met and this is not a gift with reservation with benefit.
Daughter has now died (a few years after the gift). Her Will provides for her estate to pass into a Discretionary Trust. The widow does not wish to pay market rent, so a GROB will arise.
However, what if daughter’s share is appointed out of trust (within 2 years of death) and given to son. As he is occupying the property (and has done since death) does that mean there is no GROB on the gift by the widow to the daughter? Further, does the 7 year clock restart for the widow in respect of the gift to the daughter, or does the original date of the gift still apply?
You draw attention to an often overlooked issue linked to s.102B planning. Subsection (3)(b) does not disregard the cesser of the donee’s occupation caused by their death (or indeed any other factor however deserving—such as permanent residence elsewhere because of age or health or other force majeure).
I don’t see how this can be avoided as you suggest. This is because the trigger for the GROB is the termination of the deceased’s occupation which is not cured by his or her successor in title either going into occupation or being an individual already in occupation (other than the donor which only avoids the GROB by augmenting their estate).
The donor is in a bind as the GROB’s 7 years will not even begin to run off unless and until the donor’s occupation ceases. A variation in favour of the deceased ironically will allow another PET to the other occupying child; there will be no GROB as long as he occupies and after 7 years the PET will no longer cumulate.
The deceased child’s legatee must be willing to do this without consideration (though the proposal indicates that might be on the cards). If the legatee is the son a gift back to him might be seen as consideration but what’s to lose? It will be a PET by him if there is no reading back.
Some sensible preliminary deliberation is needed to the possibility of the donor ceasing to occupy, when the 7 years would begin to run, or the son doing so reinstating a GROB in regard to whatever his interest was when that occurred.
Sch 20 FA 1986 may assist. If the PRs or legatee dispose of the gifted share for market value consideration the donor is treated as not continuing to have a reservation: paras 4 and, by necessary implication rather than explicitly, para 2(4). That will set off the 7 years running.
The test is market value not arm’s length so the sale proceeds can be left outstanding as a loan—interest-free, if wished. No CGT if done quickly and PPRR for buyer. The seller will not mind presumably if a gratuitous variation would have been acceptable.
The debt will be deductible in the debtor’s estate as long as s103 FA 1986 is not a concern (previous gifts by creditor to debtor). No POAT for seller as long as they do not later occupy.
I am an idiott. I omitted to make clear that the PRs/legatee would be seller and the child in occupation the buyer.
The debt could be repayable out of the sale proceeds but the seller will make a PET of the excess of the loan amount over any annual exemption if it is not repayable on demand and is interest-free. May also be acceptable and insurable. An equitable charge causes no problem