who pays IHT?

[pqtaxation]

Presuming:

1) mother (donor) will continue to live in her cottage after sale of house by son (donee)

2) the conveyances of both the gifted and sold land were properly completed in 2006 with son’s ownership recorded on land registry and the house and cottage became separate residences thereafter for council tax and utilities etc.

3) the sale at market value of land surrounding the cottage and the capital gain and SDLT thereon were reported to HMRC in 2006/7 (and that sold land’s eligibility for PPR from CGT or not was agreed then)

4) the sale of the house and garden/land is properly reported by son on his SAR for year of sale

And so

1)donor (mother) was not enjoying the property to the exclusion of the donee (son)

2) donee (son) is "in occupation" of the property

Then:

From your brief description it would seem unlikely that, on death of mother and the subsequent filing of her IHT account, that HMRC would not accept that gift of house and its surrounding land in 2006 was a PET (with no reservation of benefit).

So to answer your questions in your OP, based on the above, IHT would only be payable on PET as a result of mother’s death within 7 years; and if her estate including failed PET begot IHT liability then as she has survived long enough after 2006 there would be taper relief on the PET and the son (donee of the failed PET), not her residual death estate, would be liable for the IHT payable after taper relief on the PET.

With respect of maximising market values of the properties, it does look odd that it was the land surrounding the cottage that was sold to son, in order to provide funds to mother for her renovation of cottage, rather than the house and or/its land with mother retaining the land surrounding cottage. The result looks to be that the land surrounding the cottage will be sold with house by the son thereby leaving the cottage to be sold separately at a later date without much/any land/garden which may depress market value/saleability of cottage without an equal uplift in value/saleability of house. But IHT/SDLT liability and areas of land/garden may have been deciding factors in 2006 (and could still be today).

[bc185]

Thanks pq for all that which is much appreciated- re the property you are probably right but client knows best!!
just one technical point - re any failed PET would you mind giving more detail why the liability falls on my client as donee rather than his mothers estate-thanks once again

[maths]

Was there originally one piece of property the legal title to which was in the mother's name?

After sale and gift is this still the case?

How was the gift effected?

[pqtaxation]

Thanks pq for all that which is much appreciated- re the property you are probably right but client knows best!!
just one technical point - re any failed PET would you mind giving more detail why the liability falls on my client as donee rather than his mothers estate-thanks once again

Thanks pq for all that which is much appreciated- re the property you are probably right but client knows best!!
just one technical point - re any failed PET would you mind giving more detail why the liability falls on my client as donee rather than his mothers estate-thanks once again[/quote]

IHTA S199 (1) (b) as transferor/donor is dead. But S199 (2) gives HMRC right to pursue personal representatives. Makes it difficult area and HMRC practice covered at IHTM 300041 and related manuals

http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM30041.htm