The question is this: given that a co-owner is entitled to continue to occupy by virtue of her own interest can it be argued that the other interest, gifted and now not owned by her, is “property subject to a reservation” within s102(2) FA 1986?
The wording would seem a problem if the donee does not occupy. That raises a separate question of what constitutes “occupation”. But in the straightforward case of the donee already living in the property as their main residence is it arguable that the donor’s continuing residence is “not referable to the gift” but flows from her separate right of occupation as co-owner? These words are used in IHTM14333 but the reference to Example 3 in 14334 is of no assistance: very different facts and is an example of when a gift IS referable rather of one that IS NOT. No doubt HMRC do not want to tutor us here in our tax planning.
But here is an echo from the past when Grandfather (normally a “hopelessly out of date dinosaur”) used to exploit the intricacies of Estate Duty with the approval of J. B. Morcom of Counsel (and of Stamp Duty with R. S. Nock in the next room in Stone Buildings). ED had no spouse exemption. So if H gave the matrimonial home, or his share in it, to W he had to rely on the ED version of s102 not applying, so that the requisite survival period would start and continue running. HMRC accepted that his continuing occupation, even after a gift of the entirety, was as spouse and not as donor. So “not referable to his gift”.
The legacy of their thinking seems to flow into their (ridiculously brief) comments on s102B in IHTM14360: “This provision sets out in statutory form the practice which has already been adopted for transfers of undivided shares of land”. Even so whether s102B applies in terms depends on its precise wording, so only applies to the gift of an undivided share (which includes such a gift by the owner of the entirety) and in subsection (4) requires dual occupation and no benefit. Both of those requirements were also in force under ED for a H-W gift. It also raises the question of what “occupation” means, which I argue must be consistent throughout this network of provisions
From 2006, s102ZA equates the termination of a QIIP in the “no-longer-possessed-property” to an outright gift, so must surely extend to s102B as well but that unfortunately is not explicit. Is this another draftsman’s oversight or intentional? The section came in later in 2009 but HMRC say it was based on their existing practice. I don’t know the answer but it is another totally avoidable statutory mess unless intentional.
So after all that (written) peroration I can’t answer Haroon’s question with any certainty, which is deeply unsatisfactory.The arguments are:
1 The donor who makes the PET continues in occupation by virtue of her own 10% share which is “not referable” to her gift of the 90%; and/or
2 s102B applies, even though s102ZA does not refer to it in terms but because itdoes apply to s102 and Sch 20, the donee occupies and “shares the outgoings”, and occupation is not lost as long as the right to occupy is credibly maintained, by analogy with HMRC’s practice on “virtual exclusion” in IHTM14333.
Jack Harper