As regards IHT the key legislation in point is s.102B FA 1986. I find the apparent situation, that this kind of tax planning just doesn’t seem to be routine to you, a little concerning since you seem to be an adviser not a punter. Perhaps it is just that you are not a tax specialist. If you are relying on an IFA and he is not advising on tax (and good luck if he is) do ensure someone else is. Stuff on here, stupendous though it be, is not advice.
There is an argument in principle that no GROB arises at all because mother’s theoretical right to continue to occupy as a TIC is not a benefit referable to the gift of 49%. It is a “carve-out”.
Retaining 1% is no doubt to satisfy the management company. For IHT alone it also works well as a “carve-out” as it allows her to actually occupy. A gift of her entire 50% would become a GROB under s102 if she did later occupy, unless para 6 Sch 20 applied.
The snag is that this retained 1% TIC interest could be intentionally and specifically caught by anti-avoidance legislation in s102A unless it comes within s102B. S102A requires the interest retained to be “significant” and it is because in theory it confers the right to occupy the entire property!
It needs to be determined whether mother “occupies” for s102B. Here actual occupation is meant, not just the right of a TIC.
It seems clear at present that mother does not actually occupy in fact though as TIC she has the right to do so. (Mother’s not charging a rent is not an omission TOV under s.3(3) as it does not increase the daughter’s estate).
It is better at first glance if the donor is not in actual occupation because no sharing of outgoings or other consideration is required as then subs (3)(a) will apply.
But HMRC is so hell-bent on finding in general that a donor remains in or goes back into occupation (and so has made a GROB under s102) that not much is necessary for them to argue that the donee is in occupation within s.102B.
“Occupation” cannot have a different meaning in relation to donor and donee. If both are in occupation, the donee must in theory stump up some money in order to come within subs(4). She must share fairly with her mother the kind of expenses that a landlord would still have to pay if a tenant occupied. Guesswork or advice is often needed here as to what actual expenses and how much. But the daughter here will then have 99% of the property, so 1% is vanishingly small and
HMRC should accept that the benefit to the mother was “negligible” if she paid nothing.
The outcome seems to be that if mother is not in occupation she is safe under (3)(a) and if she is in occupation she is safe under (4).
Did the daughter put up her share of the original purchase price? If not then you may have a GROB by the mother at that earlier juncture but only if she continued to occupy in fact as opposed to just being a TIC. s102B could have applied then too but if it is only complied with now the reservation will cease and a deemed PET will occur under s102(4). If she put up all the price the daughter will herself have made a gift? A rather necessary clarification of the question.
Also if s.102(4) does apply then there is a clear exemption from a POA charge. If subs(3) applies POA is just not engaged at all.
Her retaining 1% is helpful as it engages s102B; if she gave away her entire 50% she would then need to avoid subsequent occupation and thus avoid any GROB user s102.
Remember that if either or both of the gifts of the 50% (if the daughter did not pay half the purchase price—not stated in the question) and the later 49% will still be PETs, though not GROBs because of s102B(4).And the donor is 82!
A future sale of the 1% at market value would not be TOV. A gift of it would have to be analysed broadly as above. S102 could apply not s102B. S102A would not in the absence of an offending arrangement. To avoid a GROB under s102 mother must not later occupy save in para 6 circumstances. Given the trap, is a transfer of 1% a good idea? It could also be an “associated operation”. Best avoided and left by her Will instead.
Has CGT been considered? The property is not apparently the mother’s PPR.
I hope that the current arrangements and the gift of 49% and retention of 1% are not in breach of the contract with the management company concerning the age condition of the “occupier”, whatever that means in context.
A deliberate misrepresentation
may not only be breach of contract but also fraud and what HMRC are told will be evidence. Some financial advisers sail too close to the wind and risk being co-conspirators with some of their naive in-house gung-ho constructed schemes.
I do not believe the GAAR is in point but retaining only 1% may attract HMRC attention. 5-10% smells better but would mean expense sharing to that degree if mother ever occupied. PETS do not need reporting unless they fail but a CGT return may flag up the operation earlier as may the mother’s death.
Jack Harper