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Where Taxpayers and Advisers Meet

Gifting part property answer

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm
Re: Gifting part property answer

Postby maths » Thu Mar 05, 2020 9:38 pm

The reversing of the gift does not give rise to a PET (technically a PET is made but as the donor's estate is not reduced no actual IHT charge arises).

I'm beginning to lose the will to live!

If husband's NRB available to surviving wife then no IHT charges seem to arise.

vik2001
Posts:72
Joined:Sat Nov 17, 2012 2:24 am

Re: Gifting part property answer

Postby vik2001 » Fri Mar 06, 2020 8:02 pm

Thanks maths. Ive had to give the situation a lot of thought as im getting married. I didnt want to move out ideally. But i didnt want to create a situation if something happened to me first and i died, and house prices went up in future my mums house could get hit if there's a iht bill on my head due to me having half share.
My current estate is worth 225 of house and 300 in cash.

Nicklam
Posts:44
Joined:Sun Jan 19, 2020 1:00 am

Re: Gifting part property answer

Postby Nicklam » Mon Apr 13, 2020 1:50 pm

I dont think the barristers advice is correct from a tax point of view. For iht value joint tenants individually are valued at owning half a share. So it shouldnt matter whether owned as joint tenants or tenants in common. But yes undivided share refers to tenants in common but hmrc may take a lenient view.

E. G
Mellows, Taxation for Executors and Trustees, para. [4.93] says:

Where the gift is of an undivided share of an interest in land, e.g. where a donor places his house into the joint names of himself and his daughter so that they hold upon trust for themselves as beneficial joint tenants or tenants in common in equal shares, he is treated as having made a gift with reservation by virtue of FA 1986, s. 102B unless:

… (3) the donor occupies jointly with the donee provided that the donor receives no other benefit at the donee's expense in connection with the gift (FA 1986, s. 102B (4); …

Mellows, therefore, equates a gift to joint tenants with a gift to tenants in common for the purposes of FA 1986, s. 102B.

It may be also that HMRC do not take the point. IHTM15061 is instructive. The material parts are:
IHTM15061 Gifts With Reservation
It is possible that joint ownership arrangements may involve a Gift With Reservation (IHTM14025) (GWR)

Example
Anthony transfers his house into the joint names of himself and his son as joint beneficial owners (IHTM04031) so he has made a gift of a half share of the house. Anthony then continues to live in the property without the son taking up occupation. Anthony does not pay any rent to his son for the use of the son's half share. That is a continuing benefit to Anthony from the gift he has made to his son, so the gift is a gift with reservation of benefit (GWR).

The key point here is hmrc saying a gift as joint tenants is a half share, so i think it does not matter to them what kind of tenancy you have.
If you are worried about tenancy you can sever your joint tenancy creating a tenancy in common and have a will in place.
Saying that severing may kick a 7 year pet off.

There is, however, a better argument that, on severance, there would be deemed to have been a gift by of a half share. FA 1986, Sch. 20, para. 2(1) applies for the purpose of s. 102B (s. 102C(4)) and provides:

(1) Where there is a disposal by way of gift and, at any time before the material date, the donee ceases to have the possession and enjoyment of any of the property comprised in the gift, then on and after that time the principal section and the following provisions of this Schedule shall apply as if the property, if any, received by the donee in substitution for that property had been comprised in the gift instead of that property (but in addition to any other property comprised in the gift).

So on severance you would cease to have possession and enjoyment of the property comprised in the gift, i.e. your interest as joint tenant. You received in substitution of that interest, property in the form of a half share. That half share would, therefore, be deemed “as if it had been comprised in the gift” instead of the original gifted property, i.e. the joint interest. Impliedly, the gift of the substituted property, i.e. the half share, is back-dated to the date of the original gift.

There is, therefore, little to lose by a severance of the joint tenancy. There are 4 possible analyses:

(1) FA 1986, s. 102B applied pre-severance, and also applies post-severance, there being no material difference between a tenancy in common and a beneficial joint tenancy for the purposes of s. 102B. Therefore, there is no reservation of benefit by virtue of s. 102B. It might be easier to run this argument if there is a tenancy in common at the date of mothers death.

(2) By virtue of FA 1986, Sch. 20, para. 2(1) there is deemed to have been a gift of an undivided share, as from the date of the Transfer, for the purposes of FA 1986, s. 102B. In that event, there is no GROB. This is, I believe, the correct analysis.

(3) FA 1986, s. 102B did not apply pre-severance, but does apply post-severance. In that event, there will be no reservation of benefit on death; but there will have been a deemed PET by mother on the severance when her reservation of benefit came to an end (FA 1986, s. 102(4)). If, therefore, mum survived for 7 years from the date of the severance, there would be no charge in respect of the original GROB. If she did not, moms’s nil rate band and TNRB would apply to the failed PET.

(4) FA 1986, s. 102B did not apply pre-severance, and does not apply post-severance. If that were the case, there would, at least, be no downside to the severance from an IHT perspective. The GROB would simply continue.


Its complicated but if ever queried your first point would be to argue there is no grob as joint tenants as long as you live together as its deemed from a iht value you own half shares.

Nicklam
Posts:44
Joined:Sun Jan 19, 2020 1:00 am

Re: Gifting part property answer

Postby Nicklam » Mon Apr 13, 2020 1:57 pm

Just to add to the above the leading iht book, Dymond Capital Taxes, para. 5A.806 says this in respect of FA 1986, s. 102B:
Because the legislation refers to the gift of an undivided “share” in land it is considered that the donor and donee must be beneficial tenants in common and that the section does not apply if the gift involves a beneficial joint tenancy.

There are conflicting views in different books but personally i think as long as you have in joint names yiu be fine. If anything if you marry sever tenancy and leave everything to your wife. So no tax for you if you die first. But im not sure what happens to your mother if you die first and leave to yr wife. On mums death is it a grob? Maybe someone else can answer that, maybe she can leave her share to another sibling

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

Re: Gifting part property answer

Postby maths » Mon Apr 13, 2020 4:38 pm

FA 1986 s 102B is designed to alleviate the adverse impact of the IHT gift with reservation provisions where there is co-ownership of a property ie it is in a sense a relief from the impact of an IHT charge following a gift of property. Satisfaction of the section allows the donor to continue to live in the property post the gift.

The section specifically states: "......an individual disposes, by way of gift,.........of an undivided share of an interest in land".

No further definitions are provided.

For IHT purposes it is only necessary for a transfer of value to occur to potentially precipitate an IHT charge. Where X owns a property 100% beneficially and gifts, say, a 20% interest to Y then X's estate is diminished in value and a transfer off value by X has occurred. This is so whether or not X and Y own as joint tenants or tenants in common. To this extent HMRC are not too fussed how X and Y own their respective beneficial interests. However, in ascertaining whether s102B is in point then based on the wording of the section the nature of X's gift is important.

Property law provides that under a joint tenancy no single joint tenant has a "share" which is capable of being dealt with; each tenant holds the whole. It is for this reason that on the death of one joint tenant the survivorship rule applies because the deceased joint tenant possesses no interest which he can leave in his will (or on an intestacy).

On the other hand a tenant in common is treated as holding an undivided share in the property ie a distinct share; each tenant in common can therefore deal with their particular share (including, for example, leaving it by will). The referenced to "undivided" is a reference to the fact that the property is not itself physically divided up.

S102B refers to a disposal "of an undivided share of an interest in land" not simply "an interest in land".

I would therefore be very wary if the protection of s102B is sought to make any gift of property unless it was a gift of an undivided share.

Nicklam
Posts:44
Joined:Sun Jan 19, 2020 1:00 am

Re: Gifting part property answer

Postby Nicklam » Mon Apr 13, 2020 6:26 pm

Maths so do you think in this case severing the joint tenancy will result in having a undivided share? Kicking a 7 year pet?

If not selling the property and acquiring a new property as tenants in common may result in having a undivided share possibly kicking a new 7 year pet.

Personally i think its silly if they use the joint tenancy against you as it should be considered 50/50 but severing it shouldnt do no harm and if anything out you in line with s102b strengthing your case

Nicklam
Posts:44
Joined:Sun Jan 19, 2020 1:00 am

Re: Gifting part property answer

Postby Nicklam » Mon Apr 13, 2020 6:40 pm

I think view points can be different. For e. G
https://www.blasermills.co.uk/buying-a-property-jointly/

They seem to think joint tenants is a undivided share.
It will probably come down to how hmrc see it and they probably havnt been many cases of this

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

Re: Gifting part property answer

Postby maths » Mon Apr 13, 2020 7:01 pm

If X, sole legal and beneficial owner, declares a trust over a property under which X and Y are beneficial joint tenants I think there is a real possibility HMRC will argue s 102B is not satisfied.

If, having done this, X then modifies the trust under which X declares the property is held for X and Y (50/50) as tenants in common I do not think this removes the reservation first created by X. Nor is a PET made by X (because X's estate is not diminished).

I agree that there does not appear to be universal agreement re s102B as you appear to have noticed by the various published material by various solicitors etc.

Nicklam
Posts:44
Joined:Sun Jan 19, 2020 1:00 am

Re: Gifting part property answer

Postby Nicklam » Mon Apr 13, 2020 7:57 pm

I agree with your points maths.
The only thing i would say is by severing the tenancy it would then create a undivided share, whether that can be argued is a different point.

Regardless if it is a grob x and y should be ok as long as they live together and the donor x passes away first. That way Y can make use of all the rnrb etc available to them.


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