I have a couple who were advised to gift their properties to the ir children.
One was a gift to the son and that was fine and is more than 7 years ago.
The other , age old problem, mum and dad give the house to the daughter and they and the daughter continue to live together. ( they believed it was outside their estate now for inheritance tax purposes)
They also have around £1million is investments. The house given to the daughter is worth approx £500,000. The daughter is their carer and if she receives rent then would loose her allowances .
They are looking to minimise inheritance tax
Would they still get residence nil rate band on their deaths ? As it stands they would still be charged to inheritance tax on the house given to the daughter ?
They could start paying her fair market rent and then after 7 years the house would be outside of their estates for IHT
The daughter being a carer (for both parents )does that have an impact on anything, I read somewhere about the fact that there is no GROB if rent is paid ro the donors are unable to look after themselves
The residence nil rate band (RNRB) may be available if the GROB property qualifies as a “qualifying residential interest” and was given during the donor’s lifetime to lineal descendants, provided the donor died on or after 6 April 2017 (section 8J(6), IHTA 1984). Under section 66 of the Finance Act 2019, for deaths occurring after 29 October 2018, a lifetime gift to qualifying beneficiaries—where the deceased retained a benefit—will only qualify under section 8J(6) of the IHTA 1984 if the gifted property immediately became part of the donee’s estate. This seems to limit the rule’s application to situations involving outright gifts, bare trusts, or disabled trusts.
Generally, if Mum and Dad pay a market rent for continued occupation, this comes within one of the exceptions to the reservation of benefit rules in section 102B(3) and (4) of the Finance Act 1986
However:
Finance Act 1986, section 102:
The GWR rules don’t apply if the donor and the donee both occupy the property and the donor’s continued occupation is not by virtue of any right or arrangement (i.e., not because they made a deal to keep living there — they just happen to share occupation naturally).
HMRC Inheritance Tax Manual (IHTM14333 and IHTM14332):
HMRC’s own guidance confirms that:
If the donee genuinely shares occupation,
And there is no special agreement giving the donor a right to remain, then there is no reservation of benefit.
There are some examples in IHTM, which may sit with your facts.
The only thing I would add to Andrew’s analysis is that whether or not a GROB exists is to be assessed at the time of death, looking backwards over the previous 7 years.
Where the donor uses the “rent” exemption, it is therefore important that a “market” rent is paid throughout the period from the date of the gift to death (unless they can be certain of when they will die and can ignore paying rent until the start of the 7 years before their death).
There have been various postings discussing the frequency of rent reviews to ensure a market rent continues to be paid at all times.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
To my mind, the only time the market rent point would be advantageous is if you had a child on a low income. Otherwise you could potentially push your children into a different tax bracket.
My advice is usually give cash away first, with the family home as a last resort. Collette’s clients have £1m in investments. They should, in my view:
Follow Simon’s suggestion and give away the whole of the house
Start gifting some cash and hope they survive a minimum of 3 years.
The house was gifted in its entirety to the daughter many years ago.
Do we all believe we can still claim the Residence Nil rate band - we are discussing gifting or putting money in a trust for the children but just looking at what allowances they are likely to get
I looked briefly at McCutcheon on Inheritance Tax 7th Ed. Paragraph 7-191 discusses disposals of part and Regulation 2005/724.
The text states:
The exemption for cases where the consideration is not in money or money’s worth is apparently intended to allow a parent, for example, to give a share of the family home to a child who gives up work to care for him, provided that the acquirer can show that he has suffered detriment. In the Manual, HMRC state that such detriment could fulfil the requirement in the Regulation for consideration; it is thought, however, that HMRC would want to see evidence of advice having been taken and possibly other steps suggestive of an arm’s length arrangement.
It will be the usual caveat that each case is decided on its own facts.
In relation to the RNRB, paragraph 4-22 of the same text states:
Although the RNRB can only be used on a death, where, as noted above, a lifetime gift of a QRI was subject to a reservation of benefit (a “GROB”) at the time of the donor’s death the RNRB is available as against the IHT charge on the donor’s death by reference to the reservation of benefit provided the donee is a lineal descendant; in those circumstances the donee of the gift is treated as “inheriting” the property interest on the donor’s death.
GROBs cannot, however, benefit under the downsizing rules. Where an individual makes a lifetime gift of an interest in a residence which is a GROB, the gift itself will not qualify as a disposal for the purposes of the downsizing provisions unless/until the reservation comes to an end.
I believe the RNRB can still apply when the donor dies, as long as the person who received the gift is a direct descendant (like a child or grandchild). However, the donee lives in the Property and shares costs, it is not classes as a GROB. Does this then affect the RNRB?