Gifting half share of property

My clients would like to gift their son, a half share of there main residence as a PET, and to follow the sharing rules to allow it as a G Without ROB.

The main residence is currently in joint tenancy.

If both parents remain for the seven year period, then the objective is achieved. But, what happens on the death of only one parent in the seven year period.

Pavan

If each parent gifts a 25% interest in the property to the son then each parent has made a PET. Assuming the conditions of IHTA 1984 s102B(4) are satisfied there is no reservation of benefit arising from either gift.

If one of the parents dies within 7 years that parent’s PET becomes chargeable. However, this death should not adversely affect satisfaction of s102B(4).

Malcolm Finney

If the son ceases to live at the property at any time during the lifetime of either parent there is the risk that a GWR will arise. He, and his parents, should seek advice ahead of such an event to ensure that they are aware of the issues that will arise, and how they might be managed.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

As the property is owned as joint tenants, wouldn’t they first need to change to tenants in common prior to making the gift? This would enable them to leave a share of their part ownership.

Lucy Orrow CTA TEP
Lambert Chapman LLP

Whilst a formal severance of the joint tenancy would create certainty, is not the making of the gift sufficient in itself to sever the joint tenancy - it is an act inconsistent with the continuance of a joint tenancy and, therefore, effective severance under the Common Law principles applying pre 1926.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Wouldn’t it suffice for each joint co-owner declaring how much percentage they each have on a TR1.

Is this a misprint for TR1? An entry in Panel 10 of that (or use of the JO form) including an X in the appropriate ownership box is surely very good evidence of intention as to ownership as regards anyone signing the document but a separate antecedent declaration of trust can regulate other matters e.g. the sharing of expense arrangements and even a future sale.

A well-drawn document now may head off potential arguments bearing in mind that these may involve not just the initial parties but future (possibly divorcing) spouses, creditors, vindictive warring sibling children and their spouses or de factos (for the time being). A contemporaneous document cannot rule out such issues completely but is better than a ticket for the lottery of proprietary estoppel-type shenanigans.

Jack Harper

Presumably, the parents (H and W) hold the legal title jointly for themselves as joint beneficial tenants.

They could transfer the legal title to themselves and son (S) with H, W and S then holding the title for H, W and S as beneficial tenants in common 25, 25 50%. Transfer of the registered title at LR requiring TR1 completion.

Alternatively, H and W could simply execute a declaration of trust under which they hold the legal title for H, W and S as beneficial tenants in common 25,25 50% with legal title remaining only with H and W. No filing TR1 then necessary.

Under either approach the beneficial joint tenancy of H and W will be severed by so-called “mutual conduct”.

Regarding Paul’s comment about the possibility of the son ceasing to live in the property, if such were to happen the reservation of benefit rules would kick in as the s102B(4) conditions would no longer be satisfied (donors may then need to pay market rent). Not only that, but on any future sale of the property the capital gain attributable to the son would be chargeable to CGT as private residence relief would only apply to the period of occupation (assuming such occupation was qua a sole or main residence).

Whether the gift is a good idea for tax purposes may need careful thought.

Malcolm Finney

1 Like

OK by act of assignment of each parent of their interest to their son creates a tenancy in common.

Agreed, so many people focus on the IHT implications of gifting a share of the family home and then overlook the very real CGT liability they are creating if the new owner does not reside in the property for the full period of ownership. Also, such a share will impact on son, in that he will lose any first time buyer status and should he look to purchase his own home he will pay the higher rate SDLT as he will already own an interest in another property making any future purchase a second property and deemed an investment.
It is very important when giving IHT advice over gifting a share you do not over look the CGT implications that could end up being more costly! I would also have regard to the STEP and Law Soc practice notes on giftig the family home - whilst this is only a part share the full ramifications must still be considered and advised.