When is a gift, a gift with reservation

Hayelyhayley

Hi, this is in reference to this post (cant link - see below for details) but this post is self contained really.

I spoke to a solicitor today and he said that if I was to put £325,000 of my £500,000 house into a Nil Rate Band Trust on death then this would not be effective as it would be a GWR as i had been living in the house, and it would form part of my estate. I thought that made sense but have since been thinking:

Surely if the £325,000 of the house is gifted into a NRB trust ON DEATH, then is cant be treated as a GWR as the gift occured on death??

Original post:
"
My first is due to do wuth trying to avoid inheritance tax. My partnert and i are not married and will not get married (persaonl reasons) and the 2 kids.

He owns a rental property and has some cash in the bank (total value is about £380,000), i pretty much just own our main house (£500,000).

Before seeing a solicitor i just want to get some things clear in my mind so i know what my options are: We're looking at using nil rate trusts via our wills so that we can utilise both out IHT allowances (thinking ahead to when both of us have gone).

I'm happy with how it would work if John died (house + some cash into trust, i can acesss the funds, IHt chargeabke on the remainder), but im not so sure about me:

Becuase my house is valued at £500,000, is it possible to just place £325,000 of it into a trust? Or would i have to give part to John as tenants in common, so that i could then out my £325,000 into the trust.

My other questions are: Can the surviving partner access the capital of the trust or just the income? Would it be better if i gave john half the house as joint tenants so that it passes to him via survivorship (am aware of the CGT issue here). And finally, if I went with the orignal suggestion i think i read somewhere on a website that as John would be benefiting from living in the house (part of which would be i the trust) he would be deemed to have an interest in possesion which would make the trust useless??"

SeniorSam

Hi again Hayley,

I thought that all your questions had been covered in your last thread. If you gift your nil rate band allowance to a Trust on death it is not a gift with reservation. It would seem that the solicitor you have spoken with has made a mistake. Any gift with reservation means that you are retaining an interest. Hardly the case when you have died.

I suggest you only speak with solicitors that are S.T.E.P. registered as they will know the correct facts.

Sam

getmore4less

if i gave john half the house as joint tenants so that it passes to him via survivorship (am aware of the CGT issue here).

What CGT issue? I can't think of one unless niether of you are living in the house.

jimmo

I am definitely no expert on this but can we spell this out, just in case? My understanding of your situation is.
Your house is worth £500k and is your only asset.
If you gift a half share now to John now and continue to live there it will be a gift with reservation.
If you gift a proportion of the house to a trust now and continue to live there it will be a gift with reservation.
Either way, the full market value of the house will be taken into account in assessing your estate to IHT when you die.
If you will a proportion of your house to a trust then, when you die, the entire house will still form your estate and be assessed to IHT.
At present day rates the IHT bill on your death will be (500k -325k) *40% = £70k
As I understand it, the potential value of a "nil rate trust" is not to reduce IHT on the first death but to avoid the trust assets being charged to IHT again when the second death occurs.

taxing

jimmo wrote: »

I am definitely no expert on this but can we spell this out, just in case? My understanding of your situation is.
Your house is worth £500k and is your only asset.
If you gift a half share now to John now and continue to live there it will be a gift with reservation.
If you gift a proportion of the house to a trust now and continue to live there it will be a gift with reservation.
Either way, the full market value of the house will be taken into account in assessing your estate to IHT when you die.
If you will a proportion of your house to a trust then, when you die, the entire house will still form your estate and be assessed to IHT.
At present day rates the IHT bill on your death will be (500k -325k) *40% = £70k
As I understand it, the potential value of a "nil rate trust" is not to reduce IHT on the first death but to avoid the trust assets being charged to IHT again when the second death occurs.

Sorry, no. There is an exemption from Gift with reservation of benefit (GWROB) where both the transferor and transferree continue to live in the property and the transferor pays full share of all the running costs.

As said above, speak to a TEP (STEP member).