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Gift with reservation of benefit

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  • 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.
    I agree that they should take professional advice. An IFA specialising in IHT planning would be the ideal person. Unfortunately a time machine. Is not available, as that is what the OPs father should have done before attempting a DIY IHT badge.
  • p00hsticks
    p00hsticks Posts: 14,444 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    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,

    And the triple whammy is that there is also a potential CGT liability due when selling if the gift recipient was not residing in the house......
  • Malthusian
    Malthusian Posts: 11,055 Forumite
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    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.

    There is no more contradiction between the house being "in and out of his estate" than any other gift with reservation or failed PET. All of which involve assets that you don't own but are "in your estate" regardless.

    The RNRB isn't made unavailable on the basis it's "out of his estate", it's unavailable because to benefit you need to own a residential property, and he didn't, he'd given it away.

    There is downsizing relief so that people don't cling on to oversized houses to avoid losing IHT relief, but that doesn't affect him because the gift was made before the RNRB was introduced. The RNRB didn't affect his decision so he didn't need downsizing relief. Downsizing relief isn't applied retrospectively for the same reason we don't apply tax retrospectively.

    Ultimately the late father made a cack-handed attempt to avoid tax and it has had unintended consequences. This is quite normal. If it hadn't been for the introduction of the RNRB, not much harm would have been done - the estate would only have paid IHT that it was going to pay anyway. However, the change to the rules means that he did in fact make his IHT bill bigger.

    When the rules changed the OP could have given Dad his house back to regain the RNRB. (No capital gains tax would have applied on the gift as primary residence relief appears to apply. It would have been a PET but they could have taken out insurance to cover the risk of the OP predeceasing his dad. And what would happen if the OP predeceased his dad is a whole other can of worms anyway.)

    But they didn't so here we are. You can't blame HMRC for a "double whammy" if someone has an opportunity to avoid the second whammy and can't be bothered.

    If you come up with a scheme to avoid tax and don't review it when the rules change it is again quite normal to incur extra tax.
  • V2001
    V2001 Posts: 248 Forumite
    Fifth Anniversary 100 Posts Name Dropper
    The rnrb can be claimed if it was a gwr. We need figures here to confirm if solicitor is correct. But something seems off.
    If it was their main house and all lived together no cgt. Were you joint tenants If? If so they can claim sharing expenses so s102b applies and it won't be a gwr.

    If it was a gwr it's a failed pet and the 7 years won't start as everything stays in the estate. If the gift was made after 2015 the rnrb can apply even with a gwr.
    Also it depends if any tnrb can be used.
  • Keep_pedalling
    Keep_pedalling Posts: 20,878 Forumite
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    V2001 said:
    The rnrb can be claimed if it was a gwr. We need figures here to confirm if solicitor is correct. But something seems off.
    If it was their main house and all lived together no cgt. Were you joint tenants If? If so they can claim sharing expenses so s102b applies and it won't be a gwr.

    If it was a gwr it's a failed pet and the 7 years won't start as everything stays in the estate. If the gift was made after 2015 the rnrb can apply even with a gwr.
    Also it depends if any tnrb can be used.
    The RNRB can’t be claimed as the house was given away 13 years ago.
  • V2001
    V2001 Posts: 248 Forumite
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    edited 4 January 2022 at 11:44PM
    V2001 said:
    The rnrb can be claimed if it was a gwr. We need figures here to confirm if solicitor is correct. But something seems off.
    If it was their main house and all lived together no cgt. Were you joint tenants If? If so they can claim sharing expenses so s102b applies and it won't be a gwr.

    If it was a gwr it's a failed pet and the 7 years won't start as everything stays in the estate. If the gift was made after 2015 the rnrb can apply even with a gwr.
    Also it depends if any tnrb can be used.
    The RNRB can’t be claimed as the house was given away 13 years ago.
    Ok thanks for clearing that up. So on a GWR, the RNRB can only be claimed if the gift was made after 8th July 2015?
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