I am dealing with an estate where the deceased had transferred 100% of the equity in a property which he solely owned into an interest in possession trust with him and his wife as life tenants. He has died and is survived by his wife. I am of the view that the gift into trust will need to be included in the IHT account as a GWROB. Spouse exemption is not available as the trust is not a qualifying interest in possession trust and does not form part of the spouse’s estate. However, is it correct that not all of the beneficial interest in the property would be included as a GWROB as the trust was not solely for his benefit? Thanks in anticipation of your input.
The starting point is to identify the property given away. You then consider whether either of the 2 conditions in s102(1) FA 1986 is met. If so, the “property subject to a reservation” per s102(2) will often be the identical property given away but not necessarily. It may be altered, substituted, or settled in which case the rules in Sch 20 apply.
It is possible too that the reservation subsists in only part of the gifted property or in a lesser interest than the one gifted. It must be arguable if an asset is gifted to a trust with two distinct funds that a reservation could subsist in one fund but not in the other, provided careful drafting was spot on in achieving this outcome. A plain vanilla joint life interest in the entire trust fund is more typical. This therefore is probably the position in the OP trust. (There is no parallel with the IPDI approach where each LT is deemed to own beneficially a proportionate part of the whole trust fund or conceivably in a single designated asset or separate fund).
If each LT has an interest in the entire trust fund in my view that would mean that the whole property is GROB property. (Similarly in a DT merely being an eligible object has the same effect, despite their having a mere spes and no proprietary interest in any trust asset, unless again their eligibility to be benefited is not quoad the entire gifted property).
It is important to keep in mind that “reservation” is a shorthand term for any of the conditions in subs(1) being factually satisfied. There might be some doubt technically whether a LT is in possession within (1)(a), rather than the trustees who have the legal title, but enjoyment of an entire residence comprised in the trust fund will be operative unless the LT is excluded from a distinct part.
Likewise under (1)(b) it does not take much for HMRC to opine that the donor is not entirely excluded, or not “virtually” so, from benefit: IHTM14333/4. Note here that the value of the benefit may be wholly disproportionately small compared to the value of the property gifted which is what is deemed to be within charge to IHT.
Jack Harper
I agree with what Jack says but just to add: if the property was the deceased’s home, and he continued to live there, I don’t think you can avoid the conclusion that he had a GRoB in the whole.
His 7 year clock did start (we are not told about the precise timing of the transfer) because the TOV must also have been a CLT if made on or after 22 March 2006. It was probably a GROB in 100% of the gifted asset. (Shame on me for exploring the possibilities that it might not be in relation to factual scenarios which the OP information did not exclude).
There may be a double charge issue but I dare not speculate further and so risk being helpful.
Jack Harper