Gift with reservation of benefit

love2learn

Hi,


My parents gifted their house to me. It's worth less than £150K, I live in Scotland and I have made sure they have "life rent" under Scottish law. This means they can live in the house for the rest of their life and I can't remove them from it.


When I was at the Lawyers in Scotland, I asked them does that mean my parent have to pay me rent. And they said no, it's entirely up to me whether I charge them rent or not.


I don't charge them rent and don't want to charge them rent. Now I am completely away of the rules around "gift with reservation of benefit", meaning that they should be paying me "market rate". However as the lawyer told me the above, I am now assuming that this is different in Scottish life rent law? As they said it was up to me if I charge rent or not.


Can someone please clarify. I will go back to the Lawyer on this, however I just wondered if anyone here has knowledge of this in the meant time.


Thanks :-)

xylophone

Depending on the total value of your parents' estates, IHT might not have been a consideration anyway?


What was the reason behind the gift of the house?


http://www.caesar-howie.co.uk/services/inheritance_tax_avoidance/inheritance-tax-guide.php

Scottish firm apparently. See Gifts with Reservation.

Have you in effect created an interest in possession trust?

Would this would get round the requirement to pay a market rent?

Anybody gifted their parents' home could say that they were content for their parents to live there for life without paying rent and give them the legal right so to do through an IIP but would this get round the GWR rules?

If it did, one would have expected to see this tried as a "tax avoidance" measure and for HMRC to have got wise to it and put rules in place to prevent it?

However, one would have expected a Scottish lawyer to know his business although you could check with HMRC yourself?

love2learn

Hi,


When I typed the question I wasn't considering all the relevant factors. No my parents entire estate will be under the £325,000, so I wouldn't expect any IHT liability.


The primary reason for the house being transferred to my name was the avoidance of potential care home costs. However I've read into this and it's a bit of a grey area.


There is a law in the UK that states if a gift off cash or another asset it made within 6 months of the date care is required, then the local authority can pursue the Donee to recovery money/asset towards the cost of the care home. If it's over 6 months they may also decide to investigate whether the transfer of the cash or asset was deliberate to cause deprivation of assets.


The general consensus of what I've read on various websites including the law society is that the Local authority has to prove in court there was intention to deprive them of the asset. Which is obviously more difficult the more time has past since the gift was made. Although there is no time limit on them attaching a notional value as to the value of what the property is considered to be when considering a means tested calculation on whether to provide care or not. They would still have to prove proof of this in court. So in effect they are less likely to pursue the recovery of an asset if a lot of time has past. I don't foresee both my parents requiring care in the next 10 years, so it's unlikely the local authority could prove the above in court.


I would also learn to represent myself, to avoid them trying to sicken me with legal bills. My parents are determined that as they have paid tax and national insurance all their lives then the cost of care should be met by the government/local authority, so if care become the last option we are doing everything possible to stop them stealing their home to pay for something they have already contributed towards.

xylophone

The primary reason for the house being transferred to my name was the avoidance of potential care home costs. However I've read into this and it's a bit of a grey area.

It's not at all grey if this is the case........

http://www.careinfoscotland.co.uk/how-do-i-pay-for-care/paying-care-home-fees/deprivation-of-capital.aspx

CLAPTON

love2learn wrote: »

Hi,


When I typed the question I wasn't considering all the relevant factors. No my parents entire estate will be under the £325,000, so I wouldn't expect any IHT liability.


The primary reason for the house being transferred to my name was the avoidance of potential care home costs. However I've read into this and it's a bit of a grey area.


There is a law in the UK that states if a gift off cash or another asset it made within 6 months of the date care is required, then the local authority can pursue the Donee to recovery money/asset towards the cost of the care home. If it's over 6 months they may also decide to investigate whether the transfer of the cash or asset was deliberate to cause deprivation of assets.


The general consensus of what I've read on various websites including the law society is that the Local authority has to prove in court there was intention to deprive them of the asset. Which is obviously more difficult the more time has past since the gift was made. Although there is no time limit on them attaching a notional value as to the value of what the property is considered to be when considering a means tested calculation on whether to provide care or not. They would still have to prove proof of this in court. So in effect they are less likely to pursue the recovery of an asset if a lot of time has past. I don't foresee both my parents requiring care in the next 10 years, so it's unlikely the local authority could prove the above in court.


I would also learn to represent myself, to avoid them trying to sicken me with legal bills. My parents are determined that as they have paid tax and national insurance all their lives then the cost of care should be met by the government/local authority, so if care become the last option we are doing everything possible to stop them stealing their home to pay for something they have already contributed towards.

just to observe :

since your parents continue to live in the property and their estate will be under 325,000 (or 650,000), plus you are opening yourself to capital gains tax, then it would be difficult to provide any reason to give you the house, except to avoid care costs.

Savvy_Sue

love2learn wrote: »

When I typed the question I wasn't considering all the relevant factors.

Indeed you weren't.

love2learn wrote: »

My parents are determined that as they have paid tax and national insurance all their lives then the cost of care should be met by the government/local authority, so if care become the last option we are doing everything possible to stop them stealing their home to pay for something they have already contributed towards.

I know they do things differently north of the border, but most of us pay tax and NI all our lives, and personally, I'd still prefer to choose my own care home rather than let the government or local authority dictate where I should live. If that means there's no house to pass on to my children, so be it.

Plus no-one 'steals' anyone's home if care is needed. If one of them is still living in it, it is disregarded. If neither of them is living in it, then they do not need it. If someone else is living in it, it may be disregarded depending on circumstances.

I suggest looking at a few of the local care homes which are local authority funded and check that would be OK for them. You could also investigate what % of the population actually NEED residential care in their old age (it's quite low), and how long for (usually not long).

My late mother was not noted for her willingness to spend money, even though she had plenty of it. If she'd needed care, either residential or in the home, she would have resented every penny spent on it. I speak for all my siblings when I say that we would cheerfully have given our entire inheritance, house and all, in order to ensure she had the best possible care. Allowing the local authority's financial situation to dictate where she lived would not have been our first thought.

le_loup

love2learn wrote: »

if care become the last option we are doing everything possible to stop them stealing their home to pay for something they have already contributed towards.

I think you mean "stealing" YOUR inheritance.


To hell with MY taxes paying for it.

antrobus

xylophone wrote: »

[/B]

It's not at all grey if this is the case........

http://www.careinfoscotland.co.uk/how-do-i-pay-for-care/paying-care-home-fees/deprivation-of-capital.aspx

The OP has stated that;

The primary reason for the house being transferred to my name was the avoidance of potential care home costs.

That's a pretty clear cut case of deprivation of capital. Nothing grey about it.

Savvy_Sue wrote: »

...I know they do things differently north of the border,.....

Not as far as deprivation of capital is concerned. In fact, it was the Scottish case of Yule v South Lanarkshire Council (1999) that practically invented it.:)

uknick

OP


You might find this link about Pre Owned Asset Tax useful


http://www.telegraph.co.uk/finance/property/advice/propertyclinic/5345211/Property-advice-Pre-Owned-Assets-Tax.html

antrobus

uknick wrote: »

OP

You might find this link about Pre Owned Asset Tax useful

http://www.telegraph.co.uk/finance/property/advice/propertyclinic/5345211/Property-advice-Pre-Owned-Assets-Tax.html

I'm not so sure that applies. The Pre Owned Asset Tax was introduced to catch people who used some super-clever scheme to get around the Gift with Reservation of Benefit rule. But the OP hasn't got around the GROB rule.

uknick

antrobus wrote: »

I'm not so sure that applies. The Pre Owned Asset Tax was introduced to catch people who used some super-clever scheme to get around the Gift with Reservation of Benefit rule. But the OP hasn't got around the GROB rule.

The OP is not receiving market rent from their parents. If that is the case why are they not liable for POAT? Unless the market rent is below £5k per year.


Edit: Just thinking about it some more as the estate is below the IHT threshold (I make this assumption as house is worth £150k) will HMRC want their cake and eat it by allowing the house to be a GROB and then ask for POAT and also CGT when house is sold by the children? Or, am I overthinking the issue?