IHT on gifted property - 7 year rule

[willriley20]

Hello - I am contemplating the IHT rules on gifted property and would be very grateful for any views on the following:

My father (aged 57) has accepted a new job which comes with full-time accommodation. The job is certain to last 10 years. He has offered to gift his house to me (it is currently his primary residence and would become my primary residence) when his job starts in Sept 2013. I believe this would be a gift without reservation as he would genuinely be moving out and living permanently in the accommodation provided by his new job.

Potentially, he might want to move back into the house gifted to me after his job has finished in 10 years time (Sept 2023). Given that more than 7 years would have passed by then, am I right in thinking that the gift of the house to me in 2013 would have qualified as an exempt transfer for IHT purposes, and him moving back in after 7 years would then be irrelevant for IHT?

Many thanks
Will Riley
London

[AvocadoK]

Hello Will
No, the rule does not work that way. Instead, you look at the seven years ended with the date of death and look at whether there has been a reservation of benefit in that period. If there has, you simply include the value of the house in the estate for the purposes of calculating IHT.
Regards
AK

[willriley20]

Thanks very much AK.
I suppose your response raises the question of whether the reservation of benefit test has any time limit?

To take an extreme (but plausible) example of my scenario as illustration, a 20 year old is gifted a house by his 40 year old parents, the parents move out for, say, 50 years before moving back in aged 90, and die 2 years later. Would the gift of the property 52 years before really still involve a reservation of benefit?

Will

[AvocadoK]

There is no time limit, so in principle there would be a gift with reservation in the example you give. There is, however, a relaxation to the rule where the donor re-occupies the house and the following conditions are fulfilled:

(1)the occupation results from a change of circumstances of the donor since the time of the gift, being a change which was unforeseen at that time and was not brought about by the donor to receive the benefit of an exclusion;

(2)the occupation occurs at a time when the donor has become unable to maintain himself through old age, infirmity or otherwise;

(3)the occupation represents a reasonable provision by the donee for the care and maintenance of the donor; and

(4)the donee is a relative of the donor or his spouse or civil partner.

Where all the above conditions are met, the gift is not treated as a gift with reservation of benefit (FA 1986, Sch. 20, para. 6(1)(b)).

Regards

AK

[willriley20]

Thanks again AK - your detailed response is much appreciated.

[strawn]

A gift with those conditions isn't really a gift - what you're describing is really a ten-year loan.

I presume (in my strictly non-expert way) that you could always sell it back to him.

[King_Maker]

Reciprocal arrangements are unlikely to be accepted as "gifts" by HMRC.

I assume your father is concerned that he may need the property in 10 years time?

[willriley20]

In this instance it would not be a reciprocal arrangement - there is no intention for my father to move back in after 10 years - I am interested though in the IHT implications of him moving back in as it can't be ruled out (e.g. if he became ill). Which I think AK's second reply deals with.