My client’s parents gifted their house to him in 1994 and he then held it for them on trust for the rest of their lives.
His father was the last to die, in 2016, and the property was worth about £250,000. Father’s estate contained a bank account with £19,000 and little else. The son did not need a grant of probate so did not complete any IHT forms.
My concern is that my client could do with the CGT uplift on his father’s death but I’m not sure how to claim it. I’ve been looking at both IHT100 and IHT400 and am perplexed at which, if any, need to be completed.
I would appreciate any guidance forum members can offer.
IHT 100 requires completion with respect to lifetime chargeable transfers (ie not PETs) and IHT 400 with respect to transfers on death (unless the estate is an excepted estate (IHT 205)); it appears the estate does not qualify as an excepted estate either low-value or exempt SI 2004/2543).
Presumably the house, post gift, was held on a qualifying interest in possession (mother and father each being settlors) in which case, on a termination of such an interest on the death of a life tenant, presumably your client became absolutely entitled against the trustees. Under TCGA 1992 ss71 and 73 the trustees are treated as having disposed of the trust assets in which the interest subsists and re-acquired them at their market value; any resultant gain will not be subject to a CGT charge (ie effectively a tax fee uplift on death).
If IHT is payable on the deceased’s estate and the values are “ascertained” then such values will apply for CGT purposes (TCGA 1992 s 274). However, if the values are not “ascertained” then for CGT the normal CGT market value provisions will apply.
As such, there is no need for a claim to be lodged.
As the gift was made on or after the 18th of March 1986, surely this was a gift with reservation and IHT 400 needs to be submitted. Whilst on the figures no IHT will be payable, I do not think your client will be able to benefit from the uplift in the value at the date of death of his father.
Assuming parents possess qualifying interests in possession means that under s49 on death the underlying property would form part of their estates. Accordingly, the GWR provisions would not apply [FA 1986 s102(3)].
David would need to establish if his case met the conditions of Sch.20 para. 6(1)(b) FA 1986 at the father’s death for the gift to fall within that exception to the GWR provisions. That was not mentioned in his posting.
Sch 20 para 6(1)(b) only relates to ascertaining whether any gifted property is enjoyed to the exclusion of the donor.
My point is that assuming a qualifying interest in possession subsists then there is no need for the GWR provisions to apply as the underlying property in the trust is already included as part of the estate on death. There is then no need to examine Sch 20.
I take your point Malcolm. What I’m not quite clear on is whether the parents executed a deed settling the property in trust for themselves for their joint lives and thereafter for their son absolutely. David says that they gifted it to him and he held it in trust them for the rest of their lives. Was this purely an informal arrangement? Your initial response was based on the presumption that they had qualifying interests in possession but did they if there was no settlement in existence? No doubt David can clarify the position.
I read this as son just held the property on bare trust for parents, rather than anything as sophisticated as a settlement - ideally it would have been documented of course.
If that’s the case then the property belonged to the parents on their deaths, would be IHT free as it fell within the nil rate band(s) and there would be an automatic uplift for CGT by operation of law as they (presumably father on second death) would have been the absolute beneficial owner on his death. I’m not aware of any need to file an IHT return in order to get the CGT uplift.
(If the trust was more sophisticated than a bare trust for the parents then this would be wrong!)
As David headed his post “life interest trust…” I sought of accepted this and commented accordingly; may be I should have gone down the bare trust option.
Ah well, at least David now has all bases covered.
Thank you all for your replies. I had a busy day yesterday and could not respond. I appreciate your exploring various options and I am clearer on the points now than I was on Monday.
I was going on the understanding that it was a gift by the parents to the son who then executed a life interest trust in favour of his parents.
I have studied the title register and my copy of the trust more closely.
The Trust Deed is dated 04.02.1994 and records that the parents gifted the property to my client in consideration of natural love and affection. There is no record of when the gift was actually made. He would hold the property for them, rent free until terminated by them in writing or their respective deaths and otherwise subject to the usual maintenance & insurance conditions and the option to sell and reinvest in another property.
The Property Register records the earliest date as 14.09.1977.
The Proprietorship Register dates my client’s name on 27.06.1994.
I had not noticed the gap between the date of executing the trust and registration at HMLR, but I assume that somebody took a while to submit the transfer and the Proprietorship date records when it was actually entered at HMLR. I’ll go back to my client and see what his recollection is. Fortunately he has kept extensive and meticulous records.