I am dealing with an estate where the deceased’s two children provided the purchase money for him to buy his council property under the right to buy scheme in 2018. A deed of trust was entered into stating that the deceased held the property on trust for his two children. The discount applied was just over £100,000. Neither child lives or has lived at this property.
The deceased died earlier this year and his Will leaves his estate to his two children. The property has been valued by estate agents at £450,000…
I understand that the children cannot dispose of the property within 5 years of the purchase, if they do they will have to repay some of the discount, but it can be assigned to them. What I cannot seem to find out is how HMRC would treat this, would the proportion of the discount still be held as belonging to the deceased? Reservation of benefit?
Thank you for your help.
Beverley Morris & Co
My understanding is that the discount is “property” in the hands of the tenant entitled under the Right to Buy scheme, so that the deceased will have been deemed to have made a gift to their children of that amount when the deed of trust was made.
If the deceased continued to occupy the property, then there will be a GWR/GROB and I suggest the usual rules relating to part ownership should apply, with the deceased’s interest being treated as proportionate to the contributions as at the date of purchase.
As regards the discount, I believe this is a charge on the property, in which the deceased no longer had an interest (other than a deemed entitlement for IHT purposes) and therefore no liability to repay if the terms upon which it was granted ware breached. Accordingly, my expectation is that whether or not any of the discount becomes repayable is of no relevance to the deceased’s estate (other than the fact that they are trustee of the legal title).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Presumably legal title was in the name of the tenant with an appropriate charge attached but beneficial interest pursuant to the deed with the children. The discount would be a gift and as the tenant remained in the property the gift would give rise to a reservation of benefit.
On the tenant’s death the value of the property would need to take into account the contingency of the need to repay the discount in the event of a sale by a subsequent purchaser within the 5 year period.
Thank you, Paul, that is very helpful.
Beverley Morris & Co