Gift with reservation?

A client owns two neighbouring properties - she resides in one and rents out the other. She wants to move into the rental property and gift the other property to her son to avoid the CGT charge on disposal. Her son would then rent out the property. He has suggested he would gift his mother a regular sum - not necessarily from the rental income received.

Would the ‘benefit’ of the payments from the son lead to a GROB? I can’t find any examples in the HMRC IHT manual that cover such a scenario.

Sam Hussain

It’s hard to say because reservation of benefit (and POAT) liabilities are to a considerable degree dependent on questions of fact.

An alternative would be for the son to raise an mortgage and use it to purchase the property at a concessionary price from his mother. She will have the capital sum. How much is paid depends on her life expectancy and there’s a danger that her taxable estate will be increased by the remainder of the money in her hands- but that is an improvement on the risk of losing a dispute with HMRC about GROB. I can’t see that this offends against the ROB principle.

Tim Gibbons

A rather cheeky alternative solution would be to gift son say 95% of the property (retaining 5%) on the basis that s 102B(3) FA 86 specifically excludes a GROB from arising, even in the circumstances described. Receipt of rent is not occupation.

Paul Davies

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