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Where Taxpayers and Advisers Meet
Reservation of Benefit
-
Katiewales
- Posts:2
- Joined:Sat Jan 19, 2019 5:09 pm
My grandmother gifted her house to my dad approx 25 years ago, but continued to live there rent free until she passed away in December 2017. My dad never benefited from “owning” the house until he sold it last year. Since then we have been looking into what he needs to do regarding CGT and I did read about “reservation of benefit” and wondered if this might be something that applies to this case? Any help or advice would be welcome as we really know very little!!
Re: Reservation of Benefit
I'm afraid this is a no no for tax planning. Yes, ti is a reservation of benefit but no, it doesn't help.
The house will be subject to a reservation of benefit, so included in grandmother's estate for IHT. I'm afraid it also means that your grandmother's estate will not benefit from the residential nil rate band. This may not be a problem if grandmother's estate (including the house) is below the nil rate band (which could be £650k if she was a widow and grandfather left everything to her).
As your father has been the owner of the house since the gift then, if he sells, his gain would be calculated against the market value 25 years ago.
There is a tax free uplift on death for CGT but it does not apply where the deceased did not actually own the property when they died.
The house will be subject to a reservation of benefit, so included in grandmother's estate for IHT. I'm afraid it also means that your grandmother's estate will not benefit from the residential nil rate band. This may not be a problem if grandmother's estate (including the house) is below the nil rate band (which could be £650k if she was a widow and grandfather left everything to her).
As your father has been the owner of the house since the gift then, if he sells, his gain would be calculated against the market value 25 years ago.
There is a tax free uplift on death for CGT but it does not apply where the deceased did not actually own the property when they died.
-
Katiewales
- Posts:2
- Joined:Sat Jan 19, 2019 5:09 pm
Re: Reservation of Benefit
Thank you very much for the information.
This may seem like a really stupid question, but as my father has only ever paid income tax through his employer, he has never had any dealings with HMRC directly so has very little knowledge of the process he must follow to pay the CGT. Will HMRC get in touch with him? Or is the onus 100% on him to complete a tax return? What would happen if he didn’t do the tax return?
I’m not suggested he is going to do this, it’s purely out of curiosity as we genuinely don’t know how the whole system works.
This may seem like a really stupid question, but as my father has only ever paid income tax through his employer, he has never had any dealings with HMRC directly so has very little knowledge of the process he must follow to pay the CGT. Will HMRC get in touch with him? Or is the onus 100% on him to complete a tax return? What would happen if he didn’t do the tax return?
I’m not suggested he is going to do this, it’s purely out of curiosity as we genuinely don’t know how the whole system works.
Re: Reservation of Benefit
Assuming he sold after 5 April 2018, he needs to tell HMRC he has a tax liability by 5 October 2019 (form SA1). He can then file a tax return electronically by 31/1/20 or on paper by 31/10/19.
Given it is a one-off, a paper return may be easiest. Forms SA100 and SA108. Online is fairly straightforward but he will first need to register and obtain a login and password.
Given it is a one-off, a paper return may be easiest. Forms SA100 and SA108. Online is fairly straightforward but he will first need to register and obtain a login and password.
