I am advising on a possible gift of a property to a pre-existing Disabled Person’s Trust (the trust has yet to be established). A is potentially making the gift and in normal circumstances this would be treated as a PET. However, A is also going to be one of the remainder beneficiaries.
If the trust is drafted so that A only benefits if alive at the date of the termination of the trust, would this avoid the PET being treated as a GROB?
You do not say who A is or vitally whether A is going to enter into occupation immediately (possibly by continuing in occupation) or later but within 7 years before death.
In principle the operation should be seen as a shearing operation, the remainder simply not being given away. But de facto rent-free occupation will be a benefit by “otherwise” within s102(1)(b) FA 1986.
If A as settlor is alive when the disabled person’s QIIP and the part remainder then vests in possession the reverter to settlor IHT exemption will apply. For CGT there will be an uplift tax-free to market value if death is the termination event but if it is not reverter to settlor of the relevant part will be at base cost.
When occupation is in fact envisaged but there is no GROB (if such is possible and it may only be so when the contribution rather than the disposal condition is engaged) POAT rears its ugly head. There is no exclusion or exemption for a disabled trust. It may be preferable to elect into GROB or instead plan to finesse it altogether by deliberately coming within the safe harbour of s102B(4) by retaining a part interest and paying the outgoings, which is not a GROB and is also specifically exempt from POAT. This strategy also dispenses with the uncertainty of whether the actual degree of occupation is enough to trigger a GROB. (The de minimis of £5000 pa for the annual letting value of a properly has largely been sidelined by the rise in market rents in most areas).
Jack Harper
Thanks Jack. A is the spouse of the settlor of the trust and would not occupy the property during the trust period but the settlor wants A to receive part of the remainder should the trust come to an end during A’s lifetime.
So I am going to assume that neither the settlor nor spouse is intending to “occupy” the property bearing in mind that visits are an issue: IHTM14392 and 14333-5. It would seem that s102A FA 1986 is not engaged as the reversion is not “significant”.
As regards the reverter to settlor exemption for IHT where the settlor’s spouse becomes entitled to the settled property or part ss.53(4) and 54(2) could apply but note the restrictions if the settlor has pre-deceased or the parties are no longer married.
Jack Harper
Very helpful as ever Jack. The DPT beneficiary is neither A nor A’s spouse so no intention for either of them to occupy the property. A’s spouse is unlikely to survive for seven years so the plan is to leave the estate to A to obtain the spouse exemption and then for A to gift into the trust created by the spouse as a PET.
I was not considering the exceptions in IHT 1984 s53 and s54. Although the plan is for A’s spouse to be the original settlor of the trust, by virtue of the gift being from A, then A will be the settlor of this asset so these sections would not be relevant. Client understands IHT will be payable at some point but seeks to postpone it to the end of the trust if possible.
I have a variation of this theme. The Deceased left her house to a nephew. The Executors have sold the house.
The nephew wants to settle the funds on a DPT. Is it best that this is done by way of a Deed of Variation from the Deceased’s Estate, rather than giving the net proceeds of sale to the nephew, then he creates a DPT?
He meets the s89 criteria.