Gift with reservation of one third of house

Client purchased a house with her parents and they all lived there together - owning the property equally.

Client inherited her father’s share on his death and her mother has subsequently gifted their share to the daughter.

Question: does the mother need to pay market rent on the gift she made to her daughter to prevent it being classified as a gift with reservation? If so would, I guess it would be a third of the market rent.

Depends if daughter is still living with her mother in the house ? see IHTM14332 - Lifetime transfers: gifts with reservation (GWRs): the reservation: possession and enjoyment by the donee - HMRC internal manual - GOV.UK (www.gov.uk)

Yes she does - background: all three occupied the property together until dad died and since that date mother & daughter have both occupied the house together and will continue to do so.

Wayne, why did she gift her share to the daughter? If it was to deprive herself of an asset with nursing home fees in mind, it won’t work unless the daughter is 60. If it was done for IHT mitigation then yes she will need to pay 1/3 market rent.

Patrick Moroney

Before committing the mother to pay a rent have you considered the position if the GROB applied at her death bearing in mind the RNRB would be available against the GROB as the gift was to a lineal descendant?

If mother and daughter still occupy the property together, and the mother meets her share of the expenses, doesn’t S.102B(4) FA 1986 apply, to exclude a GROB? If so, no rent need be paid by mother.

Ray Magill

If following mother’s gift of her interest to daughter mother continues to reside in the property the gift is one of a reservation of benefit. As Ray points out compliance with FA 1986 s102B(4) would remove the need for any rental payments to be made by mother to daughter as the gift would no longer constitute a gift with reservation.

Malcolm Finney