GROB - Mortgage

Trusts Discussion
1

I have a case whereby the deceased gave his property worth £395k to his daughter in 2014. Both she and her dad continued to live in the property. Daughter then moved out in 2019 and rented 2/3 bedrooms out, and dad occupied one bedroom (rent free).

In 2018, a mortgage of £284k was taken against the property in daughter’s sole name, to allow her to buy another property, which she did and after renovating it, moved in in 2019.

Does anyone know how this GROB and mortgage would be considered?

My assessment is that in 2014 dad retained a GROB of 50% of the property. When daughter moved out and he occupied one bedroom, he then made a PET of a further 1/6th of the GROB to his daughter, resulting in him having a GROB of just 1/3rd of the property. And a 7 year PET of the 1/6th he’d given away in 2019.

Dad died in December 2022. So these shares in the 1/6th share that was released from the GROB is now chargeable to inheritance tax as a failed PET. His estate also still holds 1/3rd of the property as a GROB. The 1/6th share of the property gifted to daughter, releasing the GROB is considered failed PET subject to reduction of annual exemptions and some taper relief (if any).

What I feel is confusing me is the treatment of the mortgage. Is the mortgage of £284 in 2018 (which was taken in the daughter’s name) deemed to be a PET, and then taken into account for the GROB - so for example, do I note 50% of the mortgage on my accounts as a PET and record the GROB of 50% as less 50% of the mortgage? Then a GROB of a further 1/6th, less 1/6th of the mortgage?

I feel like 50% of the mortgage that will have related to the dad’s 50% GROB should be treated as a PET and the additional 1/6th share that is released from the GROB reduced by 1/6th of the mortgage but have no real basis for why I think this. There’s a lot of ways to skin this cat!

2

So far as I am aware, the whole of the property will be subject to a reservation unless the donor is either excluded or “virtually” excluded from benefit. Unless the property is gifted in part only (i.e. into joint names) there is no apportionment of value.

It needs to be borne in mind that s.102 Finance Act 1986 applies at the time of death and whatever has happened between the date of the gift and death is generally irrelevant.

In the example in question, I therefore suggest that the reduced level of accommodation enjoyed by “dad” has no impact on the IHT position on this death

With regard to the mortgage, again, I do not see this as affecting “dad’s” reservation as the liability was solely the daughter’s. Even if “dad” was paying the mortgage, I suggest the payments would be viewed as further gifts to the daughter in the form of PETs, rather than affecting the value of the reservation.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals