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.