Gift with reservation of benefit- Declaration of Trust to children

A widow client has come to see me. She owns a house which she lives in with her three adult children. The mortgage is in her name and she pays monthly payments from her personal bank account . The previous adviser has prepared a declartion of trust in which she has transferred 30% share of the property to each of her three children and she now ownS 10% as tenants in common, The above ownership change has not been registered with Land Registry because I believe the banks may not accept it

There is no formal or set arrangment in place regarding the sharing of outgoings with the children

The client was advised that if she survived 7 years then the property will not be chargeable to IHT.

Does the above arrangment fail under GWROB

Umesh Gohil
Bell Maison

To avoid being treated as a GWROB, I would have thought that the resultant ownership should reflect the actual occupation of the property and that therefore, each should beneficially own a 25% share.

Paul Storrie
Storrie & Company

I don’t think a definitive answer can be given here because s102 FA1986 envisages that the reservation can take place at any time in the 7 years prior to death:

“Subject to subsections (5) and (6) below, this section applies where, on or after 18th March 1986, an individual disposes of any property by way of gift and either—

(a) possession and enjoyment of the property is not bona fide assumed by the donee at or before the beginning of the relevant period; or

(b) at any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise;

and in this section “the relevant period” means a period ending on the date of the donor’s death and beginning seven years before that date or, if it is later, on the date of the gift.”

All that can be said is that there may be no GWROB now, subject to Paul Storrie’s comments on the size of the share retained. If the children move out then the conditions for a GWROB will arise.

Graeme Lindop
Coles Miller Solicitors LLP

S.102B FA 1986 seems to apply. There have been gifts of undivided shares of interests in the land, the donor and donees occupy the land, and I assume the donor does not receive any benefit at the expenses of the donnees. So long as these conditions apply, there is no GWROB.

But if any of the adult children donees moves out, there would then be a GWROB in respect of that child’s share.

The practical problem is the reference to ‘the banks’. This suggests that there is a mortgage. That aspect needs to be addressed. I assume the debt remains with the donor.

Ray Magill

Apologies for asking what is probably a straightforward question. If s102B FA 1986 applies and it is not a GWROB, is it necessary to submit a full IHT400 on Donor’s death or will an IHT205 suffice?

Kathy Melkerts

Melkerts Solicitors