This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Reversing gift solution

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

Postby vik2001 » Wed Mar 11, 2020 9:10 pm

i been given this advice by a tax barrister, on how to reverse a GROB when adult child and mother living in same house. Objective is to convert a joint tenancy GROB into a tenancy in common so sharing arrangements can apply. welcome opinions. im not sure if its got issues, and its proven. but he said its possible

THE TWO STEP APPROACH (note mother caught by GROB)
1. If the son lives at home and gave his share to his mother that does not resolve the problem, as he be caught by GROB living at home.
However, the following will resolve the problem.

Step One - the son gives by deed of gift his total property interests to his mother and she becomes the full legal and beneficial owner of the same.

Step Two – when the above formalities have been completed and the land registry entries made the mother by deed of gift will give a tenancy in common beneficial interest to her son and the land registry entries will be made (instructing solicitors will deal with the formalities and not the client).

CONSEQUENCES OF THE TWO STEPS APPROACH

Step One – gift to mother of son’s total house interests.
On its own this achieves little. The mother’s estate remains the same for IHT purposes and the son is caught by the reservation of benefit provisions in spite of a relieving provision in FA 1986 Schedule 20 para2(4). The reservation of benefit provisions do not apply to mother on her death re the gift to her son on 28/4/2016 as that gifted property is actually in her estate.
The key provision is FA 1986 s102(3) which reads thus:
102 Gifts with reservation

(1) Subject to subsections (5) and (6) below, this section applies where, on or after 18th March 1986, an individual disposes of any property by way of gift and either—
(a) possession and enjoyment of the property is not bona fide assumed by the donee at or before the beginning of the relevant period; or
(b) at any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise;
and in this section “the relevant period” means a period ending on the date of the donor's death and beginning seven years before that date or, if it is later, on the date of the gift.
(2) If and so long as—
(a) possession and enjoyment of any property is not bona fide assumed as mentioned in subsection (1)(a) above, or
(b) any property is not enjoyed as mentioned in subsection (1)(b) above,
the property is referred to (in relation to the gift and the donor) as property subject to a reservation.
(3) If, immediately before the death of the donor, there is any property which, in relation to him, is property subject to a reservation then, to the extent that the property would not, apart from this section, form part of the donor's estate immediately before his death, that property shall be treated for the purposes of the 1984 Act as property to which he was beneficially entitled immediately before his death.

The most that can be extraordinarily argued is that when the mother gets the property back the reservation of benefit provisions cease and she must survive 7 years under s102(4) but I take the common sense view that if the property is back to where it started the GROB provisions do not apply.
So after step one the son is caught by the GROB and the full property is in the estate of mother and little is achieved.
No SDLT or CGT is payable re step one.

Step Two – mother gives son tenancy in common interest
The mother and son must ensure they satisfy the provisions of s102B referred to above. After 7 years the half interest will no longer comprise part of the mother’s estate.
The half owned by the son as tenant in common will be part of his estate and s102(3) set out above (the underlined part) cancels out the GROB re the interest which the son gave to his mother at step one: one cannot be caught by the GROB to the extent that the property which is caught by the GROB is part of one’s estate in any event.
No SDLT or CGT will be payable re step two.

POAT AND THE TWO STEP APPROACH
The POAT is excluded where a tenancy in common interest is given by the mother within the relief in FA 1986 s102B (FA 2004 Schedule 15 para 11(5)(c)). The gift back by the son avoids the POAT by virtue of FA 2004 Schedule 15 para 11(5)(a). The son and mother live in the house by virtue of the rights referred to in FA 1986 s102B(4) so the POAT is excluded and I cannot see that the earlier gift in 28/4/16 and the gift back proposed (step one) affects that.
Thus the POAT has no relevant application.

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

Re: Reversing gift solution

Postby maths » Wed Mar 11, 2020 9:30 pm

You have posted a number of times on this issue and I'm not sure this post sets out the complete background so it's difficult to understand exactly what's happening ie exactly what transactions are being unwound.

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

Re: Reversing gift solution

Postby vik2001 » Wed Mar 11, 2020 9:59 pm

That was the barristers reply on how to reverse the gift of joint tenancy that was caught by grob. Because a joint tenancy isnt a undivided share so is caught by grob.

So hes basically explaining how to reverse the grob and create a tenancy in common so the sharing arrangements can apply


Return to “Inheritance Tax, IHT, Trusts & Estates, Capital Taxes”