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Where Taxpayers and Advisers Meet

Gift With Reservation

benson54
Posts: 3
Joined: Wed Sep 12, 2018 3:33 pm

Gift With Reservation

Postby benson54 » Wed Sep 12, 2018 4:28 pm

Hello there,

I will try to be brief.I want to ascertain the implication of a course of action.

I swapped properties with my Grandchild a while ago.I remained in my original property while my new house was completely renovated.During the renovations ,I was hospitalised and during my stay I was diagnosed with some serious health issues that meant I need a carer.

My granchild has suggested I move in with her and live in the self contained annexe in my original property and rent out my new house.

Neither of the two properties is worth more than my IHT threshold and I understand that there could be implications should I ever need to move to a care home,but , I would like to know what problems if any would arise if I move in with her?Does this course of action fall into the Gifts With Reservation legislation?

Many thanks in advance for your replies.

maths
Posts: 7426
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gift With Reservation

Postby maths » Thu Sep 13, 2018 6:16 pm

I can't understand which property is which.

benson54
Posts: 3
Joined: Wed Sep 12, 2018 3:33 pm

Re: Gift With Reservation

Postby benson54 » Fri Sep 14, 2018 9:53 am

Good morning,

I swapped properties with my grandchild. We used solicitors and payed the relevant stamp duty etc.I continued living in my original property while refurbishment took place on my grandchild’s property.As my original property was worth more than my Grandchild’s she took my house and gave me her house and agreed to pay an element of cash as well.The cash has not been payed yet and I am considering making a gift of the cash so that she doesn’t need to pay it.During the renovation work I was diagnosed with a serious illness,which meant I need a carer (self funded).My granddaughter has suggested I stay in the self contained annexe at my original property so that she can help look after me and rent out my new house.My question is will this cause any problems with my estate in terms of IHT ETC when I die?

maths
Posts: 7426
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gift With Reservation

Postby maths » Fri Sep 14, 2018 2:44 pm

If the exchange of properties was carried out at market values then no "gift" element was involved. As a consequence the issue of "gifts with reservation" for IHT does not arise.
EG Your original house worth £600k and grandchild's worth £400k. You swap and grandchild owes 200k.

If however, using above figures properties were swapped but you were happy to accept cash of less than 200k then you have made a gift and as you are remaining to live albeit in the annex the reservation of benefit rule applies. This would mean on your death your property (i.e. the one with the annex) would still form part of your estate for IHT.
Even if the original exchange was at full market values but you now waive any part of the outstanding 200k (using the above figures) this would also constitute a gift.

Assuming market values were adopted one option would be to not waive any part of the outstanding "loan". On your death, you could leave grandchild sufficient monies to allow the debt to your estate to be repaid.

Alternatively, if you wish to waive the outstanding loan now then all you would need to do to avoid the reservation rules then applying on your death is to pay grandchild a market rent under a formal rental agreement for occupation of the annex (no need to pay rent for the whole house). Any such rent could be funded from rent arising if you rent out your new (i.e. ex grandchild's) property.

No CGT arises on your death re your new property.

There amy be other solutions.

benson54
Posts: 3
Joined: Wed Sep 12, 2018 3:33 pm

Re: Gift With Reservation

Postby benson54 » Tue Sep 18, 2018 2:59 pm

Thank you for responding.That gives for food for thought.I will consider my options and decide how I want to proceed.Thank you once again for your help.


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