There may not have been an initial GROB at all. On general principles it seems arguable that the donor only retained his own living space and only gave away the rest. A shearing operation. It is safer to explicitly record the parties’ understanding of this mutual intention in a contemporaneous document. A simple gift of 75% of the property opens up the counter-argument that as a co-owner he is entitled to occupy 25% of the whole house including the donee’s own space! There is a massive problem with the shearing argument if he does not immediately occupy initially, or continue to occupy, the part he later does; but as long as he has a reasonable share of the total rents it is arguable that he has retained the right to occupy from the outset.
s102B is designed to overcome this problem. It is not specifically apt to deal with an HMO and in subsection (4) talks about the donor and donee both occupying “the land”. What is that in this context? Of course the donee does not occupy the donor’s quarters, or vice versa, nor do either occupy the quarters of the third parties. Are each of the individual flats “the land”?
The key factor is that the donor is entitled to 25% of total rents including his own during his occupation and that this amount is commensurate with the space he occupies or at least crucially not less than is justifiable on that basis.
So while he occupies the donor has two arguments for no initial GROB. Once he moves out even if those arguments do not succeed the GROB will evaporate 7 years after his leaving as long as he survives and does not return within 7 years of his death. Even then his PRs could stll run the 2 arguments that his return was not a GROB.
On the shearing argument he would not need to pay rent at all but my concern is that if the arrangement was documented as a gift of an undivided share (there must be a document for a valid transfer of land if only of the equitable interest) HMRC will say it is not shearing; that it comes only within s102B, if at all, and for that the payment of rent fits more comfortably into (4( (b). No rent for his own space nevertheless seems defensible as his 25% share of the rents for remaining space (even if the donee’s was rent-free too) is not a “benefit” derived from his own occupation of his flat and the common parts.
The drafter of s102B clearly had a single dwelling or parcel of land in mind. The owner of an undivided share is entitled to occupy the whole as a joint tenant in equity and, if a tenant in common, regardless of the size of his share. That is subject to the agreement of the parties and TOLATA 1996. The common sense view with an HMO is that, if not expressly then impliedly, one co-owner does not exclusively occupy any part of “the land” save his own (and the donee likewise). If he leaves that, and it is let out, and he then returns none of that should matter. The reasonable analysis would be that because of the division into flats the parties have de facto partitioned the land even though perhaps not strictly in law. (I have done this for relatives sharing a home and a specific agreement is infinitely prudent, though in extremis still arguable without). Although he would not be entitled to the whole rent from his own space he is not making or receiving a gift because he is entitled to 25% of all rent received. So no benefit or disbenefit. Common sense inside HMRC, however, is vestigial or non-existent but in greater supply in the FTT, albeit at some expense.
Some valuable indication of how HMRC might approach the characterisation of an HMO are in SDLTM00410-30. Here they are straining sinews to find a single dwelling, because it disadvantages the taxpayer, but it correspondingly reveals what they might accept as multiple dwellings. Which, if it suited them, they would be arguing for, since they are intellectually dishonest and lack integrity. They should be objective and not distort facts, and the deductions to be from them, to maximise the returns for the Exchequer and get points on their loyalty card.
Jack Harper