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Where Taxpayers and Advisers Meet

Complex case of IHT treatment of gift with reservation - or is it?

Bobbin47
Posts:1
Joined:Sat Mar 04, 2017 12:18 am
Complex case of IHT treatment of gift with reservation - or is it?

Postby Bobbin47 » Sat Mar 04, 2017 12:29 am

My grandfather gifted my father his property in the 1990s and on my grandfather's death in 2014 we accounted for IHT on the house on a standard 'gift with reservation' basis.

However in the year 2000, on marriage, my father gifted 50% of the property to his new wife (my stepmother) and the pair of them later (2007) gifted my sister a share (all this while my grandfather was still living in the house without paying any rent).

The house was sold on my grandfather's death in 2014.

My stepmother died recently, and when completing the IHT forms, I'm asked whether she has ever given away an asset that the recipient couldn't take possession of - which clearly is the case as my sister and I couldn't realise our gifted share of the property at the time. So, given I have to declare the gift she made to us - even though it was more than 7 year before her death - what on earth do I fill in for the 'Value at date of death' figure requested, given that the property is long sold???

AnthonyR
Posts:322
Joined:Wed Feb 08, 2017 2:33 pm

Re: Complex case of IHT treatment of gift with reservation - or is it?

Postby AnthonyR » Wed Mar 08, 2017 8:10 pm

I'm assuming that the sale in 2014 was a third party sale to someone unconnected? In that case your stepmother didn't gift at that point.

The only gift she made was the gift of part of the property to your sister in 2007, which was more than 7 years ago. She didn't retain any benefit on that gift, so that will have left her estate.

Looking at the IHT403, your issues are around Q8-12 and although you would answer yes to Q8, this leads you to 9 and 10, both of which you would answer No to. This means you don't include them in box 12. Chances are the inspector reviewing the return will likely raise a query, but you should be able to explain it.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Complex case of IHT treatment of gift with reservation - or is it?

Postby maths » Wed Mar 08, 2017 9:46 pm

We do not appear to know the precise terms of the gift by grandfather. Was there an enforceable contract under which grandfather gifted the property on condition that he was allowed to remain living there until death or was it all part of an informal understanding (if any)?

If, for example, the arrangement gave rise to a life interest in possession on the part of grandfather the transfer by step-mother and father of a part of their respective interests to sister would be gifts of excluded property (ie gifts of remainder interests). In this case as gifts of excluded property no IHT arises thereon and no gift with reservation issues arise.

If all the arrangements were left entirely informal then at any point father/mother in law could enforce grandfather to leave and then occupy the property. In which case gifts to sister would not be such that the recipient (Ie sister) could not also occupy the property.


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