Hi - I would welcome opinions on the following scenario, as to be honest I cannot think through the correct assessment.
We have a client with an elderly mother - who is looking to move home. Currently they live in one building, split into 2 flats.
They will be relocating to a home solely owned by the daughter, which will need some improvements made to accommodate the mother.
There doesn’t seem to be a firm decision at this stage as to whether mother will be paying a fair rent.
Should the mother wish to pay for these improvements, will this be seen as gifts / PETs for IHT purposes? Or is it something that doesn’t need to be declared when the time comes?
On the one hand, mother is using her own financial means to buy ‘things’ to improve a property she happens to be living in. Not even a PET and so out of her estate.
On the other hand, could HMRC interpret this as a gift to the daughter? Indirectly, she will in effect purchase ‘things’ which benefit the daughter, and ultimately benefitting herself as the occupant? Has she created a gift with reservation of benefit?
And on a third hand(?) has she invested in her daughter’s property of which she now has a realisable value?
I’m inclined towards the former view but confess I can’t see the wood for the trees on this one.
Any and all advice would be most welcome.
Many thanks - Paul.
There is a strong element of choice available here.
1 If M just pays for the improvements she will make a transfer of value; it would seem to be a PET to D but also a GROB. The annual exemption will be deductible as regards the PET but not the GROB which will be the full cash sum expended.
2 If M pays for “things” which then belong to her, and gives full consideration, there will be no transfer of value. So chattels are OK but not fixtures.
3 Joint ownership of the property is surely worth considering. A tenancy in common in unequal shares, with a robust co-ownership agreement anticipating all the likely future events, especially those which can go wrong, not least one co-owner predeceasing the other and the consequential provisions of their Wills, sale, cesser of occupation, future improvement costs and effect if any on size of respective shares etc.
A GROB can be avoided initially by making the shares strictly proportionate to the contributions to the purchase price/capital improvements.
While s102B is not in point on a cash purchase it would be prudent to observe its rationale as regards the sharing of outgoings because a GROB can turn up much later under s102(1)(b) FA 1986: if “at any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise… and “the relevant period” means a period ending on the date of the donor’s death and beginning seven years before that date or, if it is later, on the date of the gift.”. Fair shares of “owner’s” outgoings need to be the order of the day throughout the “relevant period” and other expenses borne by the occupant who specifically benefits from them or, if both do, then fairly pro rata.
CGT PPR should be available in any event as CGT has no GROB concept.
As the value of the house will be part of the co-owner’s care fees capital, the joint residential purpose of the purchase should be explicitly declared at the outset so as to discourage an order for sale if one goes into residential care. An option to buy out that co-owner’s share (then, if not at any other specified time) at a fair but discounted price might be included in the suggested agreement. The same thought processes should go into that as into a pre-nup, cohabitation, or a “mum and dad” purchase with a child agreement: what may never ever happen in a month of Sundays sometimes regrettably does.
Hi Jack,
First of all thanks for such a comprehensive reply - that really is most appreciated.
It seems to me that either M paying for renovation work, or taking up the option of joint ownership, could ultimately lead to considerable complicating interpretation on the tax position should either party die.
I wonder if the favoured option would simply be for M to gift capital for entirely non-specific purposes to the daughter. It’s a PET, but avoids such complications. But it will be for the client to decide which way to go. At least there are a few options.
One final point if I may. I’ve read many of your posts over my time on the forum and just wanted to thank you (and many other contributors) for your efforts.
Just beware the possibility addressed in IHTM14372:
"You must watch out for a gift which initially seems to be of cash that may in reality be a GWR, by associated operations, of other property.
Example
Anna gives £100,000 cash to Bill which Bill uses to purchase Anna’s residence (worth £100,000). Anna remains in occupation until her death.
This may be a GWR of the residence."