S102B(3) FA 1986, rental income and IPDI

L owns number 30 and number 30A. He and his wife live in number 30 and number 30A is rented out to tenants (30A - the freehold is owned by L and his wife G, a 999 year lease has been granted on it to L who in turn rents it out). Rental income is something like £100k+ per annum.

G is L’s second younger wife - she has no children and they are both close to his children from his first marriage. Unusually, they are also both close to his first wife.

L wishes to leave 30 and 30A on life interest trust to G, remainder to his children and grandchildren. He is also keen not to pay huge amounts of IHT - he would rather give it to charity then to HMRC - he has a separate charitable trust.

G is keen to keep the income.

Am I correct in understanding that

  1. There would be no IHT on L’s death and there would be a CGT uplift.

  2. G could surrender e.g. 90% of her interest in 30A advancing it to the children whilst retaining the income in full.

  3. There is no gift with reservation of benefit (GROB) as the donor doesn’t occupy the land (section 102B(2) and (3)(a), Finance Act 1986 (FA 1986)

  4. The gift would be a PET and after 7 years would not be taxable on her death.

I know you can gift the majority of a property and keep the rent if you do not occupy it, I am not sure what if any impact the trust would have on this.

Miriam Spero
Phillips Lewis Smith