We are acting for an estate where the individual owned a number of properties. One of those properties was acquired as a result of a gift from her mother. However clearly this was not a genuine gift and would have been caught under the GWR rules. Her mother always continued to live in the property (and still does), paid all the bills and no rent was paid to the deceased. The only payment to the daughter was to cover the exact amount of the mortgage on the property, which by now was in the daughter’s name - however this payment was not the market rent (far from it).
The gift was made at an earlier date to assist the daughter in obtaining a mortgage on another property.
The daughter unfortunately pre-deceased the mother.
Am I right in thinking that HMRC would not consider the asset to be included as part of the taxable estate of the daughter? Are there any other factors that HMRC would consider? Is there anything else we need to look out for in this regard?
If there had been no GWR, there would be no doubt the property was an asset of the daughter and subject to IHT on her death.
GWR is a deeming provision and I do not see why this should necessarily prevent the property being taxable in the daughter’s estate. Although there are various provisions to prevent a double charge to tax, in some instances I understand a triple charge to tax can arise (and none of them is relieved).
In view of the background, was there any intention to make a gift? It could perhaps be claimed that the only gift to the daughter was the contribution to the mortgage payments, the property having been transferred to her upon bare trust for the mother. However, that could spark an unhelpful discussion with the mortgagee.
The property is in the daughter’s name; the fact that it would be deemed (for IHT purposes) to be part of the mother’s estate as well does not mean that it does not form part of the daughter’s estate. She, after all, has legal title to the property. Unless some kind of trust arrangement can be shown, I would have thought that the property will be included in the daughter’s estate for both the calculation of IHT and how the property passes under the will/intestacy.
I don’t agree with you, Taurean. If this was not a gift but instead the beneficial interest stayed in the mother’s estate, then I don’t agree that the property was in the daughter’s estate. It can’t be in both!
“I don’t agree with you, Taurean. If this was not a gift but instead the beneficial interest stayed in the mother’s estate, then I don’t agree that the property was in the daughter’s estate. It can’t be in both!”
Actually, an asset is often in more than one estate. Your typical PET, for example, will spend seven years in both the estate of the donor and the donee. Your point about the beneficial interest (and hence the value) still belonging to the mother is valid, of course, but that is what I was referring to when I said: Unless some kind of trust arrangement can be shown, I would have thought that the property will be included in the daughter’s estate for both the calculation of IHT and how the property passes under the will/intestacy (emphasis added).
If the executors of the daughter’s estate wish to argue that some kind of trust arrangement exists, then HMRC will certainly require evidence of the trust’s existence, since there default position will (quite reasonably) be to take the legal title at face value. And unless I am misremembering (always a possibility), a trust of land must be by deed, so the simple fact that the mother was allowed to continue living there is unlikely to be enough. And thank goodness; if letting a relative live in a property you owned was enough to give rise to a trust, there would be far fewer property owners supporting elderly relatives!
Yes, I think we’re saying the same thing in different ways. I wouldn’t say that even in your example an asset is in both estates – only that it is in one, and also could be taxed in the other. I think we are taking different views on how formal documentation must be to show a trust – I would happily, in these circumstances, interpret this not as a GWR but as a sham, or a nomineeship.
A gift of the property and any reservation of benefit are, of course, not mutually exclusive.
The start point presumably is to ascertain the intention of the mother and whether it was put into effect. Failing which, would not the presumption of advancement apply subject to rebuttal. On successful rebuttal there would be a presumption of resulting trust; LPA 1925 s53(1)(b) not needing satisfaction (ie no requirement for evidence of any declaration).
Legal title was transferred (beneficial title typically following) and the daughter arranged for a mortgage/remortgage on the property albeit paid for by mother. There appears to be no other paperwork.
I suspect it will be difficult to argue against inclusion in daughter’s estate.
I would review the GWR Rules carefully because for example if the Rules deem mothers gift to be ineffective for IHT purposes then it could be argued that for IHT purposes it isn’t part of the daughters estate.
If however it is taxable as part of daughters estate, then consider how Mother’s rights (eg did she have a tenancy for life at less than market rent) affect the value.
Barry Abrahamson
Abrahamson & Associates