IHT - GWRoB - Complications

Dead_keen

Original post:

We would "effectively be looking after FiL's money and would give it back to him if he asks for it but if he never asks for it before he dies then he guesses we can just keep it.

Then:

Is this any more than a family expectation that people help each other out when they can and also therefore have an expectation that the same family members who benefit from this help would do the same in return?

Absolutely that is different.

Linton

Surtely there is a simple solution. There seems to be little choice, if family relationships are to be preserved, but to keep FIL happy. The issue only arises after his death when the executor should register the safe keeping money as owned by the FIL. As the lump sum is owned by FIL, any winnings he chooses not to keep become gifts.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82168301#Comment_82168301

Although I would suspect that in similar circumstances, many executors would not register it in that way. Either through general ignorance of the details of IHT gifts rules, plus a lack of any paperwork attached to the gift. Or just conveniently ignore it ( assuming 7 years had passed) to avoid any IHT on the gift. Chances of being found out would be pretty slim.

I am not advocating any course of action, just being realistic.

silvercar

https://forums.moneysavingexpert.com/discussion/comment/82168301#Comment_82168301

But that breaches premium bond rules. Imagine declaring that, having spent the prizes over many years and NSI declare it out of order and demand repayment of all the prizes and refund the actual bonds to the estate. Maybe the answer is to wait for a win and then tell FiL that he needs to declare the money was a gift or he will need to repay the prizes back - he may change his mind.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/82168674#Comment_82168674

We (my wife and I) have looked at the PB rules and think this is probably within the letter of the rules (if not the spirit).

I am somewhat confused by the comments claiming that the proposed holding is subject to seizure with criminal sanctions related to fraudulent and illegal activity.

Can the individual that posted all that kindly provide some source?

The PB rules do state that holdings exceeding the upper limit will not be eligible for prizes but the amount my wife will have is not exceeding that threshold.

There are many examples where an asset can be owned by Daughter but beneficial interest for Father. I discussed this, in a related way, upthread where I asked about accepting the gift as GWRoB (hence the IHT tax liability that may arise) but the gift being outside the Estate for the purposes of remaindermen distribution. The comments indicated that would be the case. So, I think, that makes the gift legally my wife's but subject to the restrictions of the GWRoB. My wife is the owner of the PBs for as long as they are held.

Another example would be parents gifting their PPR to children to avoid IHT. The children become legal owners of the property. The parents continue to reside at the property, so it is GWRoB for IHT purposes (hence the intent to avoid IHT failed). When the parents become deceased and the children sell the property, the children enjoy the pleasure of paying CGT on any asset value increase. A tax that would have been avoided had the parents simply remained owners of their property.

At least, with my FiL and my Wife, there is no potential tax liability that will arise that I am aware of. PBs do not increase in value. PB winnings are not subject to income tax. If anyone sees a potential tax that might arise and would not otherwise have arisen, then please do advise what that exposure might be.

Thus far, I ceased discussion with my FiL at the point he was shouting down the phone that there is no such thing as GWRoB and he denies such a rule exists. One of my reasons for being rather more subdued on this is that, apart from accepting GWRoB so the intent to reduce IHT liability fails, I could not really see any downsides that would negatively affect us. If there are such downsides, I would be rather more vocal. That would be tax impacts, fraud / criminality / illegality, or (I guess) loss of the original capital value (as that would be a particularly stupid thing to do).

Yorkie1

More importantly IMO, given the stated facts, is that FiL retains influence over the premium bond investment and the distribution of prizes, This is clearly against the rule that PBs can only be owned by a single individual. If NS&I ever find out about this then not only would all prizes be required to be repaid but the PBs themselves would also be subject to seizure. I don't know what criminal sanctions might be involved but - just to be clear - OPs' wife is indulging in fraudulent activity by purchasing PBs which her father retains any rights to.

I am somewhat confused by the comments claiming that the proposed holding is subject to seizure with criminal sanctions related to fraudulent and illegal activity.

Can the individual that posted all that kindly provide some source?

END OF QUOTES (the formatting went wonky!)

I am not the first poster but have looked into this a little more.

The Regulations governing the purchase and termination of PBs appear to be The National Savings (No. 2) Regulations 2015.

Regulation 4 states that "(3) Subject to paragraph (4), a bond may not be purchased or held by a person on behalf of another person." Paragraph (4) does not apply in this situation.

Regulation 11(1) states that NS&I may cancel the PB if "(a) the holder purchases or holds the bond in contravention of regulation 4 (persons entitled to hold bonds) or 5 (maximum holding of bonds); or

(b) the Director of Savings reasonably suspects that the holder—

(i) has provided false information; or

(ii) holds the bond in connection with an illegal purpose."

In such a situation, Reg 11(2) states that the purchase price of the PB must be repaid to the holder, along with any other amounts due to them. So the governing Regulations do not suggest that the PB value will be confiscated. Although the poster may have had other provisions in mind which haven't occurred to me at present.

Looking at the PB brochure I have from when I opened my PB in 2020, it says that the account can be closed immediately for reasons including if false info was provided to open it, or if the person is not entitled to hold the account.

I wonder whether the poster had in mind, re. the criminality reference, the offence of fraud by false representation. In other words, dishonestly making an untrue or misleading representation about eligibilty to hold PBs in order to obtain the winnings.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/82169128#Comment_82169128

Thank you but I don't believe that applies.

The regulations states refer to the PBs being held on behalf of another person.

That does not appear to be the case here.

• FiL is making a gift to my Wife.
• FiL is of the view this will potentially reduce eventual IHT liability.
• Wife and I accept this is really GWRoB and so therefore will not impact IHT liability.
• BUT, nonetheless, the gift has still been given and is outside the Estate for distribution purposes.
• Hence, the PB are legally my Wife's and she is holding what is legally hers.

I don't think that the legal ownership of the PBs is impacted by the potential IHT tax treatment.

It is comparable to a parent gifting the house to adult children but the parent continues to live in the house. The ownership of the house is the children and the children stand to be liable for a future CGT liability. The reserved benefit (living at the house) means that the value is not removed from the parent's Estate for IHT purposes.

DRS1

I am not the person who made the forfeiture remark but for what it is worth here is a link to the Premium Bond Regulations 1972 (note they will have been amended since 1972 but I couldn't find an uptodate version showing amendments)

The Premium Savings Bonds Regulations 1972

Regulation 19 deals with forfeiture.

I think the main issue you will face is whether your wife is buying the bonds for herself or for FiL. I think it is said that you cannot buy bonds for someone else unless they are a child. Certainly there is something on the NS&I website saying premium bonds cannot be held in a trust.

Interestingly the regulations simply say you can buy premium bonds for a child. So the "you can't buy for an adult" bit is presumed because doing that is not expressly allowed? Or maybe it is somewhere else?

You also say your wife would not be holding more than the permitted amount of bonds. That may be true but if she holds for FiL and FiL holds one bond in his own name then FiL has gone over the maximum.

So either she has broken regulation 4 because she was not permitted to buy the bonds for another adult or FiL has (may have) broken regulation 5 by holding too many bonds. Either one triggers regulation 19.

NS&I would have to know a lot they probably don't know for this to be a real worry.

How might suspicions be raised? A big win going to FiL instead of your wife might do it. But I believe you can have the prizes paid to a third party if you want so maybe not.

Grumpy_chap

I think the main issue you will face is whether your wife is buying the bonds for herself or for FiL

Surely, the fundamental thing about GWRoB is "Gift With Reservation of Benefit" so the very first part of that is it must be a "gift" to be captured under GWRoB rules. If it is not a "gift" then it cannot be GWRoB.

So, if it is a "gift" then it must be legally my wife's money before she buys the PBs so she cannot be buying the PBs for FiL.

Yorkie1

@DRS1 The 1972 Regs were repealed and replaced by the (No. 2) 2015 Regs which I mentioned above (see Reg 101 / Sched 2 of the 2015 Regs).

@Grumpy_chap Reg 4 says "a bond may not be purchased or held by a person on behalf of another person". My view is that as your FiL intends to maintain ownership or control of the PB and any gains, in reality the PB would be held by your wife on behalf of your FiL, which is against the rules.