Question. For IHT planning purposes a parent gives £250k in cash, in 2000, to an adult child and hopes to survive 7 years. 5 years later the child wishes to sell the property purchased with this cash to buy a larger property. To help top up the funds needed the parent contributes another £400k and because a mortgage is required to meet the full price the parent’s name is on the title deeds. Provided that the property is held as tenants in common and the trust deed specifies who contributed what and what the split would be, does the group agree that the original gift of £250k remains outside the parent’s estate for IHT purposes? (Clearly there are other considerations regarding the new £400k gift and the mortgage repayments made by the parent).
Surely the child owns 100% of the property? The 2 gifts seem to have been of cash and there are no substitution rules for a cash gift; so all the donor needs to do is not to enjoy a benefit in the 7 years before death e.g. by rent-free occupation of the property (not intended?).
The legal title ownership is immaterial if there is no equitable ownership as long as that is carefully documented. Entering into a joint mortgage for convenience is like a guarantee, which is not a TOV unless and until it is called. So if the child exclusively makes all the repayments there will be no gift and so no GROB. The child must be careful not to pay any expenses that ought to be borne by a joint owner entitled to occupy but not in actual occupation. If the parent pays any expenses the child should meet these may be additional TOVs in their own right but plainly do not benefit the parent making the cash gifts GROBs.
However, the statement about a TIC agreement including who contributed what seems to indicate that the parent is to have an interest in the property and is apparently even going to make some (all?) mortgage repayments and so the new acquisition may be a joint purchase. A joint purchase is not strictly within S.102B so if the child is the intended sole occupant the issue of a benefit must be addressed, even if technically both have the right to occupy. HMRC take the view that “occupy” in the section means actual physical presence not just the right to occupy.
The benefit to be avoided is one which the donor will enjoy not the donee so the donee’s rent-free occupation is not a relevant benefit. It would be absurd if a joint purchase was treated differently to a gift of a part interest. Where s102B applies and the donor does not “occupy” there is no GROB: subs (3)(a). It must surely be no different where the transaction in question is not a “gift” at all within s.102.
Does the parent make a gift by omission under s3(3) in not seeking an occupation rent. S.13 TOLATA 1996 gives a “beneficiary” certain rights if the primary right to occupy is excluded or restricted but if it is not the parent is exercising the primary right not omitting to do so. I could not rule out HMRC arguing that sole occupation was the plan and thus constituted a de facto exclusion or restriction but the counter is that not seeking a rent does not increase the child’s estate, it simply does not reduce it. Also the wording of s.13 arguably does not provide a “right” unless, as a matter of fact, a beneficiary’s right to occupy has been excluded or restricted, which under subs(7) requires his consent or Court approval. S.3(3) IHTA does not catch an omission to exercise a right whose existence first requires consent: it does not catch an omission to consent to create a right. This is why a valid gratuitous waiver of a prospective right is not a TOV.
Jack Harper