Can there be a reservation of benefit from property which the donor later recovers ownership of?
Suppose that, on 1 January 2015, Jim, a childless bachelor, gives his home, Whiteacres, to his nephew Stan, but continues to occupy it. Initially, he meets all the outgoings but pays no rent.
On 18 January 2018, Jim – having been advised of the effect of s.102 FA 1986 [reservation of benefit], starts to pay a market rent.
On 15 March 2023, Stan dies in an accident. He has made a will leaving a bequest to Jim of Whiteacres free of tax.
Jim stops paying any rent, as he would be paying himself.
On 25 December 2024, Jim dies.
Jim’s gift in 2015 is exempt from inheritance tax as he survived it by more than 7 years.
There is a cessation of a reservation of benefit within 7 years before Jim’s death, in January 2018, so a charge under S.102(4) FA 1986 arises on the value then of Whiteacres.
As Whiteacres is within Jim’s estate at his death, there is no charge under S.102(3) FA 1986, even if a reservation of benefit has applied once Jim stopped paying rent.
But suppose Jim, started paying rent again on 25 March 2024, a year after Stan’s death, nine months before his own death. If a reservation of benefit can apply even though Jim now owned the property he had given away, there is another deemed PET, and a charge under s.102(4) FA 1986 on the value of Whiteacres as at 24 March 2024. There is nothing in that sub-section to disapply it if the property given originally is now back in the donor’s estate.
Ray Magill