Gift with reservation of benefit

Kiki133

Can anyone advise on this, I’ve heard from my solicitor I owe £253k after my Father died. He transferred deeds of the house into my name 13 years ago however he continued to live in the house with myself and my husband and his grandchildren. He survived the 7 year gifting period, however the solicitor says he should have been paying us market rent. We have received no official correspondence from HMRC only emails from the solicitor with a calculation of what we owe and been told we can arrange to pay over a 10yr instalment plan. 

Does anyone have any advice/feedback? Know if this is 💯 correct.
many thanks

elsien

Because he didn't pay rent but carried on benefitting from the propery because he still lived there as his main home then the property stays within his estate for inheritance tax purposes.  Is this what the solicitor is referring to? 

noh

What was the value of your fathers estate?
What is the value of the house?
Was the house the only asset?

Has the solicitor explained how he arrived at the figure of £253k ?

Keep_pedalling

And the moral of the story is to never give your house away.

The double whammy here is that because the gift was made before the introduction of the residential nil rate band that has also been lost resulting in £70k of unnecessary IHT, £150k if he was a widower.

getmore4less

As the op and family were living there the reservation should not apply to the full property.

I would think worst case 50% but potentially 1/3(op +hubby+dad) and maybe less if you count the kids.

Keep_pedalling

getmore4less said:

As the op and family were living there the reservation should not apply to the full property.

I would think worst case 50% but potentially 1/3(op +hubby+dad) and maybe less if you count the kids.

I missed the bit about the OP being in residence as well. The percentage is going to depend on what the arrangement was. Fairly simple if the house had been divided, but if not he would still have had the benefit of all the reception rooms, the kitchen, bathroom and garden so more than 50%.

Probate solicitors are rarely tax experts, so bearing in mind how much tax is involved you would be wise to spend some money on a tax specialist, something that really should have been done 13 years ago when this bonkers give away took place.

Grumpy_chap

Keep_pedalling said:

And the moral of the story is to never give your house away.

The double whammy here is that because the gift was made before the introduction of the residential nil rate band that has also been lost resulting in £70k of unnecessary IHT, £150k if he was a widower.

I am not expert but, surely, the liability for IHT can only have this one way.  

Either the property was gifted and GWR does not apply and the 7-years expired, so the value of the property is not in the estate.

OR, the property was GWR and therefore still considered as value within the estate at the time of death, so whatever allowances for nil-rate apply as at the time of death (with the "not gifted" property value in the estate).

For IHT to say it was "gifted" sufficiently so forfeits the nil-rate, but "not gifted" so still valued as part of the estate is IHT having cake and eating cake - that does not seem correct to me.

I stress, this is my unqualified and un-experienced naïve simple lay-man take that it would be unfair to let IHT have cake and eat cake, but there may be people that are knowledgeable and can confirm the correct rules.

Marcon

Grumpy_chap said:

Keep_pedalling said:

And the moral of the story is to never give your house away.

The double whammy here is that because the gift was made before the introduction of the residential nil rate band that has also been lost resulting in £70k of unnecessary IHT, £150k if he was a widower.

I am not expert but, surely, the liability for IHT can only have this one way.  

Either the property was gifted and GWR does not apply and the 7-years expired, so the value of the property is not in the estate.

OR, the property was GWR and therefore still considered as value within the estate at the time of death, so whatever allowances for nil-rate apply as at the time of death (with the "not gifted" property value in the estate).

For IHT to say it was "gifted" sufficiently so forfeits the nil-rate, but "not gifted" so still valued as part of the estate is IHT having cake and eating cake - that does not seem correct to me.

I stress, this is my unqualified and un-experienced naïve simple lay-man take that it would be unfair to let IHT have cake and eat cake, but there may be people that are knowledgeable and can confirm the correct rules.

Try https://www.jmw.co.uk/services-for-you/wills-and-estate-planning/blog/buyer-beware-gift-reservation-benefit-rules

and 

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/residence-nil-rate-band-rnrb-facts/

Keep_pedalling

Grumpy_chap said:

Keep_pedalling said:

And the moral of the story is to never give your house away.

The double whammy here is that because the gift was made before the introduction of the residential nil rate band that has also been lost resulting in £70k of unnecessary IHT, £150k if he was a widower.

I am not expert but, surely, the liability for IHT can only have this one way.  

Either the property was gifted and GWR does not apply and the 7-years expired, so the value of the property is not in the estate.

OR, the property was GWR and therefore still considered as value within the estate at the time of death, so whatever allowances for nil-rate apply as at the time of death (with the "not gifted" property value in the estate).

For IHT to say it was "gifted" sufficiently so forfeits the nil-rate, but "not gifted" so still valued as part of the estate is IHT having cake and eating cake - that does not seem correct to me.

I stress, this is my unqualified and un-experienced naïve simple lay-man take that it would be unfair to let IHT have cake and eat cake, but there may be people that are knowledgeable and can confirm the correct rules.

I am basing my statement on the wording on IHT 435 which states the following.

When to use this form

You can claim residence nil rate band (RNRB) against the estate of someone who has died providing you meet the following conditions:

• the deceased died on or after 6 April 2017

• the estate includes a residence owned by the deceased (see note 2 on page 5)

• the residence in the estate is inherited by the direct descendants of the deceased (see note 3 on page 5)

RNRB can also apply if the deceased either downsized to a less valuable residence, sold or gave away a residence on or after 8 July 2015 

As this was gifted before the 8th July 2915 then it can’t be claimed, but it is still a GWR so still subject to IHT. The estate is in effect being treated under the rules that applied at the time of the gift. 

Sea_Shell

So it looks like we could be talking about an almost £1m house here.   Hopefully @Kiki133 will confirm.

£1,000,000 less single IHT allowance (£325k) = £675k @ 40% = £270K

OP, did they seek specialist legal advise before transferring the property to you?  Did you seek your own independent professional opinion at the time too?

as Keep Pedalling has noted, that's a massive double whammy on IHT, and something their advisers should have been aware of, if it was known he'd continue to live in it.

Grumpy_chap

Thanks @Marcon and @Keep_pedalling

The thing here is that two sets of rules need to be concatenated to get the impact of GWR and RNRB joined - I agree the articles linked could be read the way noted.

If this were me, I'd certainly be taking legal advice as the rules look as though they could be read differently as well.  I was only asking for the sake of interest - none of this is likely to be a matter that ever affects me directly.

It certainly seems unjust if there is a double whammy in this way - to my simple mind an asset is either in the estate or out of the estate at time of death, whereas the explanation as given requires the asset to be in the estate (GWR) and out of the estate (RNRB) at the same time.  That is unusual treatment of an asset - the logical reason I can think of for this to be the way would be that the Government intention was to have a punitive measure against attempts to circumnavigate IHT through GWR.  However, if that was the case, you'd expect there to be some articles explaining that logic and that is not obviously the case.