I am looking for guidance as to whether the situation below would constitute a Gift with a Reservation of Benefit or rather a PET (liable to the 7 year rule).
Property owner wishes to gift 50% of his property to his 3 children and partner via Transfer of Equity to mitigate IHT. All children are under the age of 18 and reside in the property permanently.
I appreciate your thoughts in advance.
Whilst the immediate gift might be a PET, it needs to be remembered that the time for identifying the existence, or otherwise, of a GWR is on the death of the donor.
Accordingly, should he proceed with the gift and die after any of the children (or the partner) have left home, a GWR may then exist and IHT would be assessed accordingly.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
S102B FA 1986 is in play here and can negate a GROB. The counsel of perfection re subsection (4)(b), to avoid a benefit to the donor, is for the donee to share landlord-style expenses; uncertain how to apply that at any time but how realistic is it for minors to do the needful?
Can the donor put them in funds beforehand by gifts, possibly exempt under ss.19-21 IHTA, without threat from the GAAR? The timing and a decent interval between events will help. Is there any rush? Surely not as the gift will still be a PET. Personally I don’t think HMRC would want to take this on publicly but would the PRs be prepared to face down their opponents, the nasty well-heeled paranoid vindictive bullies, so they are ?
Depends what would be at stake: we don’t have values.
The loss to donor calculation will be greater than the value of 50% because the retained value will be discouted for the part interest.
Paul rightly draws attention to the date of death as the key date for determining a GROB. The key period is 7 years before death during the whole of which s102B must be complied with. It could be that during that period the children or one or more will have moved out and the GROB disregard will be governed by subsection (3) requiring the donor to pay full consideration! Of course Gen Z can’t afford to move out as a result of historic HMG non-policy.
As ever, Parliament (remember them?) in 1999 but as usual never thought through the unintended consequences of the legislation they were passing. Nor did those who designed it, in which the genial Stadtsfinanzpolitzei played their own lugubrious blinkered part, if only by negligent default or unhinged anti-Ingram classic overreach.
At any given time (3) or (4) may apply and one may possibly apply to part of the gift and the other to the another part as regards which children are and are not living at home. But does the infringement of just one subsection reinstate the entire GROB value? The rule is that any benefit (other than one which “virtually” excludes the donor) has that effect. There is no proportionality. If the gift is to the children not as a class but in separate shares, can the rule operate share by share? Who the [blank] knows?
And now we have the coup de grace, the lunacy par excellence! S. 102 (4), which triggers a PET whenever a GROB is created and ends. How on earth does that provision apply when from time to time either or both of s.102B (3) or (4) do apply or cease to apply to all or part of the gifted asset?
And what does our benevolent tax authority, always looking out for us “customers”, tell us about all this in order to assist with our compliance obligations? Well, have a swatch at IHTM14360 on undivided shares of land! Yes, that’s all Folks! Who thinks I’m being unfair to HMRC?
Finally, such a gift operates in the real world of property law. What happens if the children die or marry a nutter or a gold digger, or divorce, or worst of all, become bankrupt? Don’t worry Jeremiah! The destruction of Nineveh is just never ever going to happen, you old miseryguts. [Hell, it just did!]
Jack Harper
Oops! It was Jonah of course who prophesied the fate of Nineveh, after he had gone ex-div from The Whale.