A father and son jointly own the main home and both parties occupy it as their main residence. The joint ownership arose as a result of the father gifting 80% to his son whilst retaining 20% in his own right. This was done almost 7 years ago and to ensure no reservation of benefit arose in so far as outgoings on the property are concerned, the donor has continued to pay the majority of the outgoings, however an extension to the property is now being considered and having done some research, it does appear that each party can bear the costs , in proportion to their share of the ownership and such action will not result in a reservation of benefit on the part of the donor. Would the latter be correct?
Whilst it will not affect the notional reservation of benefit at the time, it needs to borne in mind that the reservation of benefit rules apply at the date of death, and are retrospectively applied to the 7 years before death.
As the father gave the son an 80% share, if at any time during his father’s lifetime the son moves out of the home, the father may then be caught by the gift with reservation rules.
If the son returned to live at the property, or the property was sold and the father became the sole owner of his new home, the GWR rules would still apply if the father died within 7 years of that change in circumstances.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
If the son moves out the GROB can be avoided by paying the father paying to the son full consideration (whatever that is and is it only 80% of it?). It will be liable to income tax with no corresponding deduction. Another HMRC asymmetrical double whammy.
Getting this calculation right is important as anything less than full consideration triggers a total value GROB: there is no proportionality. This is a serious potential downside of the section.
There is also the rather vague issue (because there is no definition) of what is “occupation” and when it begins, continues, ceases or is resumed.
Given the cynical intellectual dishonesty of HMRC one cannot be confident that the vestigial types of occupation which cause a GROB benefit can be relied upon by reverse analogy to maintain occupation for S.102B. “Occupation” is also not defined as such in other contexts where its meaning matters e.g. APR, rights of residence that are QIIPs and POAT.
My own paranoid suspicion is that HMRC will not accept for s.102B that keeping a toothbrush in the bathroom and a few other stored possessions is going to be continuing occupation. If the son actually lives elsewhere, although one can of course occupy more than one premises at the same time, the character of the occupation of the other residence may not be helpful.
Where occupation ceases and full consideration is not paid, it will fall to the PRs to ascertain and form a view of the historic facts. Non-professional PRs may well be endowed with the conscience of a well-trained hippopotamus, whereas a proper chap or chapess will perforce be cast in the role of Caesar’s wife and may feel obliged to seek full disclosure certainty at the expense of the estate; which is why I used to tell my clients to appoint family or mates.
I do not urge this in a cavalier manner, I hope, but I regard it as a dereliction of duty on the part of the legislature not to define such key term and of the Finanzpolitzei not to furnish us with an insight into their practice in IHTM.
The terse comment on s.102B in IHTM14360 is what J P Harman FCA, tax guru and great Boltonian, would have described as a “national disgrace”. Not publishing their internal instructions or claiming an FOI exception allows them to ambush taxpayers and their advisers and promotes wasteful litigation, as did the failure over no definition of “dwelling” for SDLT. I find it implausible that they have no settled position as the section is explicitly based on their pre-existing practice. It is also contrary to the spirit of Wilkinson that they should have a secret (or even a public) concession up their sleeves which could and should be legislated.
The point of this rant is that s.102B is in consequence to some degree a nasty elephant trap masquerading as a GROB free pass.
Another such is that there is an exemption from POAT where either s.102B (4) is satisfied or a GROB applies or is opted for. But while there is an exclusion for a sale of an entire interest at an arm’s length price (not market value: see IHTM04164) there is no exclusion for the sale of a part interest at such a price. Where a child is condemned to live indefinitely at home by ludicrous property prices parents will often wish to do that (for non-tax reasons like conferring crucial security of tenure) but such a sale caught by POAT whereas a gift of part can be exempt. Doh…!
Jack Harper