Gift with Reservation of property

Trusts Discussion
1

Mr and Mrs A are joint legal owners of a property. The property was held as tenants-in-common. Mr A signed a declaration of trust last year declaring that all of his interest was transferred to Mrs A. Since then, they have built an annex in their garden and moved into it. Their daughter and her family have moved into the main house. Planning Dept have stated that the two properties can only belong to the one title.

Mrs A wishes to gift the ‘property’ to her daughter. To avoid GROB:

  1. can they pay a full market rent just on the value of the annex (and review this annually) or must it be the whole property including the value of the house?; or

  2. can they instead simply share 50:50 all outgoings relating to both properties as a whole?

  3. can Mrs A gift the whole of her beneficial interest in the property or does she have to retain an interest?

2
  1. Assuming mother gifts her 100% interest to her daughter I believe the “full consideration” let-out in this case would require mother to only pay a market rent for occupying the Annex (as they do not occupy the main house).

2/3. If the so-called “co-ownership” let out is to apply then mother (according to HMRC I believe) may only gift 50% of her 100% interest, retaining 50%. Expenses of the whole property (main house plus annex) should then be split according to the respective usage by mother and daughter; key is that daughter must not pay more than her share as mother then receives a benefit and a GWR arises.

Malcolm Finney

3

Thank you Malcolm.

Is there a cap of 50% under the co-ownership let out, ie could the mother transfer 90% to her daughter and retain 10% and then share the expenses 50:50 (or according to use)? I seem to recall seeing an example somewhere relating to a 90% gift, but cannot find it now.

4

There is no “cap” per the legislation. I have seen commentary about a maximum of 50% but can find no rational defence of such a maximum. 90% would seem to me to be quite possible.

I believe other posts on this forum have confirmed gifts of more than 50% have been successfully made.

Malcolm Finney

5

Thanks again Malcolm, this has been really useful.