Parents gift a property to their son as joint tenants via a deed which was drawn up by a solicitor and the joint owners all pay the household living expenses equally. The son lives with the parents both before and at the time of the gift.
6 years after the gift the son decides to move out of the property and the parents do not pay the son a full market rent for his one third share of the property.
The parents both die more than 7 years after the gift.
My understanding is that the gift of the property into joint names there is no gift with reservation of benefit at the time of the gift.
The parents lived more than seven year from the gift so it becomes an exempt transfer.
Because the parents did not pay a full market rent up to the date they died then there is a gift with reservation at the time of each of their deaths.
When the father dies the house passes to the mother and son under the survivorship rules as it is held as joint tenants.
The father legally owns 2/6 of the property at the time he died and the gift of the 1/6 share to son is deemed to be the fathers for IHT valuation purposes as there is a GROB.
Therefore 2/6 of the open market value of the house plus 1/6 of the open market value of the house less a 10% discount on 3/6 is included for the father for IHT purposes less the value of the transfer to wife.
1/6 of the open market value of the house less the 10% discount is deducted for IHT purposes as 1/6 of the property becomes the wifes as spouse transfers are exempt which leaves 2/6 of the open market less the 10% discount for the father for IHT purposes.
When the mother dies should the whole of the open market value of the property less a 10% discount be included for IHT purposes or 4/6 less the 10% discount or 5/6 less the 10% discount?
My confusion it that before the gift the father owns 3/6 of the property and the mother owns 3/6 but when they gifted the property 1/6 of the fathers share and 1/6 of the mothers share became the sons.
When the mother dies she legally owns 3/6 of the property which is the same share that she owned before she gifted the property.
The fact that 1/6 was gifted to the son by the mother and 1/6 by the father does not change because the mothers share at death was the same as it was before the gift.
At the time of the mothers death she legally owns 3/6 but is there a gift with reservation as she gifted 1/6 and lived in the property and did not pay the son a full market rent up to the date of her death?
I have looked at the District Valuation services manuals and they provide guidance re an undivided share in property and that a 10% is applicable when there is joint ownership.
My understanding is that both property held as joint tenants and tenants in common are undivded shares in property and so a 10% discount is applied but when the other owner is a spouse there is no discount under the related property rules.
The manuals make no mention of what happens when there are three joint owners and two owners are spouses and the third owner is a son and there is a GROB.
Do HMRC allow a 10% discount when there is a GROB and property held as JT?
Also what share of the property is included as the mothers for IHT purposes?