CGT and Gifts with reservation?

Malthusian

xylophone wrote: »

As for bankruptcy, who knows? I suppose an elderly person (possibly even two if mother and son were both pension age) would probably be offered some LA assistance?

Little comfort to someone who used to live independently in their unencumbered house until they implemented a solution they didn't understand to a problem they hadn't properly thought about.

And they wouldn't even get that if they had assets in their name on top of the house which took above means-testing.

Londonlisa12

The house goes back to the parent in the sons will if he dies before the parent.
The son is retired and will not go bankrupt.

metrobus

getmore4less wrote: »

If they both live there the then the starting point would be
50% absolutely gift
50% gift with reservation.

getmore4forless or anyone else for that matter have you any links to this ruling I've looked but can't find anything that states only 50% would be a gift with reservation'
Thank you.

xylophone

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14332

metrobus

xylophone, thanks for taking the time and trouble in posting the link.

However I cannot see anything in it that states the GWR would be only 50% if both donor and donee both live there.

If you can point me to it I would be grateful.

xylophone

However I cannot see anything in it that states the GWR would be only 50% if both donor and donee both live there.

One of the examples given is

In 1997 James conveys his house into the joint names of himself and his daughter Sarah equally. Sarah does not take up occupation and James continues to occupy the whole property rent free until his death some years later.

This simple example can be used to illustrate several points

a) Although the gifted property, one half share of the house, is properly vested in Sarah, she has not assumed bona fide possession and enjoyment of it. Accordingly the gift is a GWR on that basis alone, under FA86/S102 (1)(a).

b) If however James had paid Sarah a full open market rent for his occupation of her half share, her receipt of rent from him would constitute bona fide possession and enjoyment by her, and the GWR provisions would not be engaged.

c) If, alternately, Sarah subsequently chose to occupy the property with James any reservation of benefit would cease at the date her occupation commenced (s102(4) FA 1986). At this time, James will be considered to have made a potentially exempt transfer (PET).

Thus from the moment the donee takes up occupation of her share of the house, the gift is not WR but a PET.

Londonlisa12

But my question was the doner gifted the house 100% to the donee and not conveys into joint names as in your above example.

Would it make a difference?

xylophone

But my question was the doner gifted the house 100% to the donee and not conveys into joint names as in your above example.

Would it make a difference?

The link was posted in response to the question posed by metrobus.

The response to your question is in post 7 and 9.

Londonlisa12

https://www.moneyadviceservice.org.uk/en/articles/gifts-and-exemptions-from-inheritance-tax

This states in any circumstance where the doner carries on an interest in the property it can not be considered a PET.

very confusing.

xylophone

This states in any circumstance where the doner carries on an interest in the property it can not be considered a PET.

See the example given in the IHT manual in 17 above.

Where the donor has gifted half the property to the donee and the donee lives in the property with the donor then the gifted half becomes a PET.

In the case you raised, it appears that a parent gifted the whole of the property to the son who lived with her and she herself continued to live in the property and without paying rent.

This was therefore a GWR for purposes of IHT.


But the question of IHT can only be relevant where the estate is large enough to pay IHT.

However, if the donor were to need means tested care, then the local authority might look at deprivation of assets.