gift of joint tenancy POAT GROB IHT

[davedee]

I have read comments on this subject on the forum, in paricular 5367 and 6029, though non appear to cover the circumstances below. I would be grateful for a reply.

In August 1998 my father bought a house for £99,000. I was made a joint tenant only as he could not obtain insurance (and therefore buy the house) unless it was owner occupied. He was moving some distance and lived in his own house until it was sold in April 1999. I understand that, as a joint tenant I am deemed to have acquired 50% of the house in August 1998 and will pay CGT on that portion when it is sold. Is this correct?

On my father's death the other half will automatically pass to me. However, assuming he exceeds the IHT threshold, is the whole of the value of the house (currently £200,000+) liable to tax at 40%, or will my 50% be covered by the 7 year rule? I have never lived in the house, except for the period August 1998 to April 1999. I have a PPR nearby.

Is there any way, at this late stage, to minimise the IHT if it is totally taxable at 40%?

I can clarify any points if I hae not made myself clear.

Thanks for your help.

[Lee Young]

Just because you are on the title does not automatically mean you own any part of the property - did your father intend to make a gift of half of the property?

From what you have said, perhaps not, in which case the entire property is still in his name for all tax purposes. If that is the case I would recommend you both execute a declaration of trust to record this.

If your father intended to make a gift then it is clear, when he did, you took up occupation of the property. There was no reservation of benefit by him at that time - provided there was never an agreement between the two of you that you would move out at a later date, leaving him once again in sole occupation, then your moving out in April 1999 does not, in my opinion, affect the earlier made gift. You could presumably move back in again if you wanted to.

Other than the house if his assets total less than the nil rate band, then no IHT anyway.

As regards POAT, if he made a gift and assuming my analysis above is correct, as he is now occupying (part of) a property that he previously owned (ie before the gift) and which is no longer in his estate for IHT purposes, it would appear that POAT will apply. However the taxable value of his occupation of half a property may be under the de minimis level, giving rise to no tax.

If his entire estate is below the IHT threshold then for POAT he should elect that the whole property be treated in his estate for IHT purposes - then there would no IHT or POAT to pay.

lxy@m-b.co.uk

[davedee]

Thank you for replying. I have taken on board your comments regarding the ownership. I think the intention of the joint tenancy was to obtain the house insurance, and my residence there was to comply with the insurance, rather than to make a gift of the property. The answer on the remainder of the problem may be altered if I was to say the whole of the value of the house will definitely be over the £275,000 threshold, something I may have implied (but not stated) on my original sumbission. I would be pleased to hear from you again. Thanks

[Lee Young]

As there was no gift the whole of the house will be in your father's estate for IHT purposes, and that, coupled with his other assets, will be subject to tax at 40% (on the cumulative value over the nil rate band).

Because the house is in your father's estate POAT can not apply.

If father were to make a gift of part of his house to you, then he would have to pay a market rent for occupying that part of the property he no longer owned (or you would have to take up occupation of the gifted part) for it not to be a gift with reservation of benefit. If this situation continued till his death, and he survived more than 7 years from the date of the gift then the gifted part of the property would be outside his estate on his death and IHT would be saved on it.