Summary/Question:
Mother diagnosed with Terminal Cancer (18 month prognosis) December 2015. January 2016 mother puts own house (£500,000) in joint tenancy with son, at advice from solicitor. No other family members. Son and mother have always lived together in house. Son owns no other property.
Mothers lives in house with son until death. Son is carer for mother until death. Mother dies December 2017 (2 years). The will states Son is sole beneficiary.
Will gift of house (joint tenancy) by mother to son be seen as a Gift with reservation of Benefits (GWR)? As mother lived there, thus receiving a benefit.
Will the estate be able to get Additional Residence Nil Rate Band (RNRB) £100,000, if GWR?
Thus will the house in the estate (£500,000) be seen as her sole property, as it is a GWR (as not seen as true gift by HMRC as received benefit), and therefore get the full RNRB (£100,000) as passing to a direct descendant, her son?
- Mother paid no rent to son
-Son paid no rent to mother
- Son cared for mother/did not work
-Son paid half expenses
House £500,000
Assets £200,000
Total Estate £700,000
Nil Rate band 425,000 (£325,000+£100,000 = £425,000 Total Nil Rate Band).
Chargeable at 40% 275,000???
Detailed Explanation with examples:
The Additional Residence Nil Rate Band £425,000 (extra £100,000 on top of usual £325,000 allowance) only applies when passing residential family property to lineal descendants upon death.
HMRC Website: “It (Additional Nil rate Band) will apply to reduce the tax payable by an estate on death; it won’t apply to reduce the tax payable on lifetime transfers that are chargeable as a result of death”
The joint tenancy agreement they made in Jan 2016 could then make the house seen as a gift (Lifetime transfer of residential property) to Son by HMRC and thus rule out the Additional Residence Nil Rate Band (£100,000). Giving a Nil Rate Band of only £325,000.
And potentially only 50% share of the property included in the IHT 400 as mothers. Son would be then taxed possibly personally for 50% of the property for his share. (Depending the double taxation rules).
I have been looking at this carefully. I hope HMRC will see this as a Gift with Reservation of Benefit. And thus include the Gift (lifetime transfer) of joint tenancy of the house on the IHT 400. Therefore 100% of the property would be included on IHT 400 as MOTHERS property. (The gift being seen by HMRC as not really a true gift, as mother derived benefit from it).
Therefore the total £100,000 Additional Residence Nil Rate Band would apply making it £425,000, as the house would not be seen as a true lifetime transfer and it passes to direct descendent, her son.
Going through the rules of Gifts with Reservation of Benefits, it appears as that’s how it could be seen by HMRC, but may be contentious as goes into specifics of the rules.
I think it will be seen as a Gift with Reservation of Benefit (GWR) because none of the GWR Exemptions apply:
• (Rule : Full Consideration: Gifted Land or chattels is not GWR if donor pays full consideration in money or money’s worth for his occupation or enjoyment).
>(Mum paid no Rent to Son)<.
• (Rule: Gift of a share of Land: A gift of an undivided share is not a GWR when the donor and the donee share occupation of the land, and the donor does not receive any benefit at the expense of the donee, other than negligible one).
>(Son paid gas/elec bills and gave cash for council tax/Also cared for her, can be seen as benefit)<.
• (Rule: Changed circumstances following a gift of Land: Exception to GWR provisions in respect of the gift of land, or share of an interest in it. This special relieving provision broadly applies if the donor occupies the land( or there is an arrangement to do so), where the occupation would be disregarded for GWR purposes in the following circumstances (Sch 20, para 6(1)(b)):
• It results from an unforeseen change of circumstances; and
(Was not unforeseen, they knew mother had Terminal Cancer)<.
• The donor has become unable to maintain himself through old age, infirmity, etc and
>(She could have maintained herself, paid by NHS sick pay+benefits
Could have physically worked)<.
• It represents a reasonable provision by the donee for the care and maintenance of the donor; and
• the donee is a relative of the donor or his spouse (or civil partner).
There is also an exception from the POA income tax charge if the above conditions are satisfied (FA 2004, Sch 11, para 11(5)(d)).
Note that all of the conditions must be satisfied (i.e. the requirements are cumulative). In addition, in practice it may be difficult to determine what constitutes a ‘reasonable’ provision by the donee for the donor’s care and maintenance.
Therefore none of GWR exemptions apply, so should be seen as GWR by HMRC and can claim Total £100,000 Additional Main Residence Nil Rate Band. And 100% of property would be included in IHT 400.
Examples:
Example: Taxation.co.uk
Absolute gifts and Residence Nil Rate Band (RNRB)
The relief will be available if T makes an RNRB gift of his residence (up to the value of the RNRB) to a lineal descendant absolutely under the terms of their will. However, the RNRB is not available against lifetime gifts of residential property. But if T has made a lifetime gift of a residential property which is then taxed in his estate under the gift with reservation rules, and the gift is to a lineal descendant, the RNRB will be available. This is illustrated by the example of John.
John gifts half of his house to his two children, but he continues to live there. He does not pay rent to the children for use of the property. On his death, the value of the half-share of the property that has been given away will be taxed in John’s estate under the gift with reservation rules.
However, because the beneficiaries of the property are his children, the RNRB may be available.
For residence nil-rate band (RNRB), the ‘qualifying residential interest’ (IHTM46011) must be part of the person’s estate immediately before the person’s death. The definition of ‘estate’ for RNRB is the normal inheritance tax definition contained in IHTA84/S5 (IHTM04029). A person’s estate is the aggregate of all the property to which a person is beneficially entitled. A person’s estate on death includes settled property in which the person had a qualifying interest in possession (IHTM16060) and >any gift with reservation (GWR)< (IHTM14301) property, but does not include excluded property.
-Therefore RNRB would apply in this situation if house seen as Gift with Reservation (GWR).
Thanks in advance for your help.
Jack
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