I am dealing with an estate where the deceased gave monies to his daughter - she used the monies to purchase a property for him to live in, which he subsequently lived in for about 5 years. No election was ever made to treat it as a GROB. The property was sold a few months prior to deceased’s death, so at this stage he gave up any benefit he had, (as an aside, it is questionable as to whether he still had capacity at this stage as he had dementia).

Should this be treated as a POAT and so we need to determine the rent he should have paid in those 5 years which will be a liability of the estate and also include the initial gift of cash as a PET? Or is this not a POAT and it became a PET when he gave up his benefit of living in the property?

I have seen in the HMRC manual that (IHTM44041) that where the person’s estate includes property this is liable to IHT, they should not also pay the POA charge on the same benefit - but I think this may be referring to when GROB election has been made.

All thoughts very gratefully received!

The initial cash gift was a PET. There is a POAT for the period until the donor moved out. There is no GROB nor a deemed PET as at the date he moved out.

Ray Magill

If the purchase of property was contemplated at the time of the cash gift, and in particular if it happened at the same time or shortly after, might it not be treated as a GROB by way of associated operations, rather than POAT? This possibility seems to be considered in the HMRC IHT manual (at IHTM14372), although the example given is a little more extreme.

I’m a bit confused by the above. Would those who have answered mind if I ask them to flesh out their answers a bit?

My understanding is that POAT only applies where something is not a GROB. Or, to put it another way, that GROB takes precedence. So if an arrangement could qualify as either, it’s GROB not POAT.

Is that understanding correct?

If so can someone explain the reason why they don’t consider the facts set out in this question to be a GROB?

Andrew, you are right that if a transaction is a GROB then POAT won’t apply, and as you say, GROB takes precedence. The reason why there is some doubt as to whether the gift in this case was a GROB is that it was a gift of cash, and it seems that the deceased did not subsequently benefit from the cash given; rather the cash was used to buy a property which he then enjoyed.

The tracing rules do not apply to absolute gifts of cash, so on the face of it this cannot be a GROB. If that is correct, then POAT would apply because the deceased provided the funds for the purchase of the property.

My suggestion is that the gift of the cash could be treated as a gift of the property itself by associated operations if, for example, the purchase was contemplated at the time of the gift. If that analysis is correct, then it would still be a GROB, but I don’t know whether HMRC would actually adopt that approach or not.

Hope that helps.

With POAT the GROB no-tracing rule for a cash gift is specifically disapplied: FA 2004 Sch15 para11(8) and IHTM 44049.

I do not think the associated operations rule can make an original cash gift a GROB of property under the tracing rules.

FA 1986 Sch 20 6 (1)(c) : “a benefit which the donor obtained by virtue of any associated operations (as defined in section 268 of the 1984 Act) of which the disposal by way of gift is one shall be treated as a benefit to him by contract or otherwise”. The rule makes an after-acquired benefit taint an earlier gift and make it a GROB, seemingly from the date the benefit is acquired under s268 (3) ; it does not change its nature, so does not displace the tracing rules.

I agree with what HMRC say in IHTM 14372, Bill’s purchase taints Anna’s cash gift with a benefit, but not that this makes it a gift by her of the property. The result seems to be that though it is a GROB it is a GROB of the cash and not of the residence. Therefore I only disagree with their final comment: “This may be a GWR of the residence”. If I am right the effect of Bill’s purchase is to make the Anna’s cash gift into a GROB but also a PET under s102 (4).

Even so I could not rule out that a Court would decide that, regardless of the statutory words, “it is really a gift of the property and not of the cash”, as judicial law-making has now sublimated into a parallel universe with alternative facts.

Jack Harper

My experience is that HMRC have not been successful in arguing that a reservation of benefit applies in the current scenario under the associated operations rule, for various reasons. The example in IHTM 14372 is also not on all fours with the current post.

The POAT provisions are clearly in point (unless the gift was made on or after 6.4.98 and FA 2004 Sch 15 para 10(2)(c) is satisfied).

Malcolm Finney