I am dealing with an estate where the deceased gifted a property to their two children back in 2000 (and did not retain a share). Deceased ceased to occupy at this point and two children lived there. Deceased moved back into the property with the children in 2013 and died in 2023.
My view is that (unless FA86/Sch20/para 6(1)(b) applies) this is a gift with reservation of benefit even though in 2007 the PET became an exempt transfer - would forum members agree or does anyone have a differing opinion?
If there is a GWROB then given the two children were in occupation with the deceased, would a 1/3 share be considered or the value of the whole? Either way I believe RNRB may apply.
Original gift is a PET and thus subject to the seven year period becoming exempt in 2007.
As the donor ceased to occupy the property when gifted, at that time no gift with reservation arose. However, when donor moved back in in 2013 a reservation of benefit arose subject to satisfying any of the GWR let-outs.
On donor’s death as a benefit was reserved in the whole property then 100% of the property is treated as part of the donor’s estate on death.
Wrt the RNRB on the donor’s death, under the reservation of benefit provisions the house is included as part of the donor’s estate and as the donees of the gift are lineal descendants a RNRB will be available.
I would be cautious about Malcolm’s view, though no doubt spot on in this precise case, that “On donor’s death as a benefit was reserved in the whole property then 100% of the property is treated as part of the donor’s estate on death”.
There is strangely no clear legislative connection between “the property” in s102 (1) FA 1986 and “any property” in subsections (2)-(4). HMRC indicate in IHTM that it is important to identify and define the property given but they are a bit vague on the property in which a reservation may exist or, in particular, come into existence later.
IHTM14313 says:
"Other situations are more complex, for example where
the donee acquires property at the expense of the donor
what the donee receives is apparently different from the property leaving the donor
the donee receives, or retains, only a partial interest in the property."
They appear to be saying that a partial interest could be a reservation in “any property” but they do not comment on whether in consequence the entire property gifted is or becomes GROB property or just a part. The example in 14313 is of a gift of an entire residence. But what if part is given? That may be caught or exempted by s102A or B. If caught, these sections clearly only affect what was given and there is an inbuilt threshold (significant right or interest and meaning of occupation respectively). What if the reservation subsists or later comes to subsist in only part of what was given away? If an estate is given and later a small distinct part or small part share is returned gratuitously does this cause all the estate to be GROB property?
In other areas of tax law specific provisions apply to indicate how an interest in only part of property is to be dealt with e.g. ss71-73 TCGA 1992
I’m not sure that any caution is necessary as Jack suggests when reading and digesting my above post.
My response was a direct response to the questions posed by Sara and based on the information she provided. It was not, and was not intended to be, a generalised statement on the reservation of benefit provisions and I would be surprised if any reader were to interpret, or extrapolate it otherwise.
A central tenet of the gift with reservation provisions is to be able to identify not only what property was given but also in what property a reservation may subsist; hence HMRC’s comment in IHTM14313:
“You need to identify precisely the property disposed of by way of gift. Until you have done this you cannot start to consider whether there is, or has been, any reservation”
I attempted to do this in order to express my view albeit exclusively restricted to Sara’s facts and circumstances.
I am a newbie. In fact, my first post and with very little past experience of Trusts. So, some latitude please.
I was surprised to read the above views. The deceased made a gift of the property in 2000. Presumably there was nothing in the terms of the gift that showed any continuing entitlement in respect of the property for the deceased. He had no dealings with, or use of, the property during the following 13 years. Doesn’t the phrase “reservation of benefit” look at the circumstances as they existed in 2000? Was there, then, any agreement or understanding between the parties that the deceased was keeping back to himself (reserving) some unspecified future benefit over the property. Is there anything to show that, in 2000, the deceased was intimating that he would have the right to return to live in the property at any future point of his choosing?
Is not the situation that, in 2000, this was a complete gift (with no reservation of benefit) and that the moving back into the property in 2013 by the deceased was simply as a lodger or guest?
Whilst the gift is made before the donor’s death, paragraph 1, Schedule 20 Finance Act 1986 identifies the “material date” at which the existence of a reservation is to be identified is the date of the donor’s death or, if the reservation has ceased within the 7 years before that date, the date upon which the reservation ceased.
Unfortunately, the legislation does not take into account the intention of the donor at the date of the gift (unless perhaps it is to have future rights over the property given away, even if those rights are not exercised?).
If the donor moved back into the property as a lodger, paying a market rent throughout such period of occupation, I do not believe a “reservation” would arise. Similarly, should he have moved back in a guest them provided the reason for his moving in was within the “exceptions” set out in s.102/Schedule 20 FA 1986, no reservation should arise.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
S.8J(6) ‘Where the property forms part of D’s estate immediately before D’s death as a result of the operation of section 102(3) of the Finance Act 1986 (gifts with reservation) in relation to disposal of the property made by D by way of gift -
subsections (2) to (5) do not apply, and B inherits the property if the property originally comprised in the gift became comprised in B’s estate on he making of the disposal.’
S.8J (1) identifies D as the deceased and B as a person who inherits from D ‘property which forms part of D’s estate immediately before D’s death’.
Does not Paragraph 6 of this schedule assist? It reads
6(1)In determining whether any property which is disposed of by way of gift is enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise—
(a)~~~
(b)in the case of property which is an interest in land, any occupation by the donor of the whole or any part of the land shall be disregarded if—
(i)it results from a change in circumstances of the donor since the time of the gift, being a change which was unforseen at the time and was not brought about by the donor to receive the benefit of this provision; and
(ii)it occurs at a time when the donor has become unable to maintain himself through old age, infirmity or otherwise; and
(iii)it represents a reasonable provision by the donee for the care and maintenance of the donor; and
(iv)the donee is a relative of the donor or his spouse or civil partner;
If a donor's moving back into the property despite a prior genuine fixed intention never to do so were not to fall within the scope of GROB, there would be no need for this paragraph.
Clifford Payton
Alpha Court Chambers