Reversing a Gift due to GROB (Gift with Reservation of Benefit)

[chambersiain]

This is a question about about the process of reversing a gift which can be classes as a GROB (Gift with Reservation of Benefit).

The Gift in question is my Father's house. I believe this clearly falls into the GROB category and as such I would like to understand the process of removing me from the deeds and giving the gift back.

Background

I have always lived with my Father in his home, he divorced my Mother in 1990 but managed to keep the family home. Since 1994 I started paying him a peppercorn rent to cover food and bills.

In 1999 he sold the family home and purchased a smaller property coinciding with his retirement. He decided that I should be put on the deeds of the new house as joint tenants along with him (I am an only child). I believe his train of thought here was that if anything happened to him, medically or financially I would get half the property. I continued paying rent to my father until I moved out of the property in 2001, purchasing my own home. I spent approximately 18 months in my Father's new property between 1999 to 2001 as a lodger.

My Father still lives in the property he purchased in 1999, he is the sole payer of the bills and is the only person registered for council tax at the property. The only time I enter the property is when I visit him approximately every other month (we live 250 miles apart - I speak with him daily).

Rather than have this GROB issuing hanging over us, I suggested to my father that we should reverse the gift and remove my name from the deeds. What is the process of doing this - any help greatly appreciated - Iain

[maths]

Before looking at the IHT position what is the current value of father's property ? There may not in fact be a problem.

[AGoodman]

It sounds as though the property will be in his estate anyway so (as maths says) it may not be a problem.

This is primarily a CGT issue as you can't claim PPR on your share when the property is sold (and if your father died there would be no tax free uplift on your share). Equally, if you gift back your share, that will be a CGT disposal at market value so you may well have to pay CGT on your share.

[chambersiain]

Thank you for the response, the value of the house is circa £350K and he also has investments of £100K

Before looking at the IHT position what is the current value of father's property ? There may not in fact be a problem.

[chambersiain]

Thank you for the response, if the property is still classed in my Father's estate why would I be liable for any gains as the property due to GROB is his and not mine?

Why would my gifting my share to my Father be a capital gains disposal? Are saying that any gift you make you have to pay capital gains tax on it?

There is a a good article here which seems to infer that there is no CGT by removing someone from a Joint Tenancy:

https://www.taxationweb.co.uk/forum/reversing-gift-solution-t56510.html

To say I'm confused is an understatement - any help much appreciated

It sounds as though the property will be in his estate anyway so (as maths says) it may not be a problem.

This is primarily a CGT issue as you can't claim PPR on your share when the property is sold (and if your father died there would be no tax free uplift on your share). Equally, if you gift back your share, that will be a CGT disposal at market value so you may well have to pay CGT on your share.

[chambersiain]

Maths, AGoodman

Thank you for your comments on my post ref "Reversing a Gift".

My primary driver is to be rid of this GROB, and ownership of the property. My Father's property in the eyes of HMRC (IHT) will still be in my Father's estate when he passes but it is stopping me from moving home (my house not his) as I'm sure I will fall under owning two homes and thus pay the extra stamp duty (second home increase).

From the little I've read on this website we could sever the Joint Tenancy put the property solely back in my Father's name via a TR1 (transfer) transferring the legal title from both names (mine and his) to solely his name and register this with the Land Registry to update the property's proprietorship.

Legal title by itself has no bearing on the CGT position, rather CGT is calculated on beneficial ownership. As I have zero beneficial ownership and he has 100% there should be no CGT to pay.

My question is Beneficial Ownership only calculated or quantified at point of death for IHT purposes or can Beneficial Ownership be used prior to an estate going into probate?

In my case I'm agreeing to the GROB and that I have zero beneficial ownership rights.

Your comments would be greatly appreciated.

Thanks

Iain

[maths]

You say:

"As I have zero beneficial ownership and he has 100% there should be no CGT to pay".

I'm not sure on what basis? Your father, who owned 1005 of the legal and beneficial ownership, transferred the legal title into your joint names. In the absence of contrary evidence it then follows you acc have a 50% beneficial interest in the property. On making the transfer into joint names what was said/documented as to the resultant beneficial ownership indicating no beneficial transfer was to take place?

You still haven't provided any numbers?

[maths]

Re SDLT you say you own your own home. If you sell it and acquire another own home for you then the 3% charge will not apply whether or not you own an interest in your father's home.

[chambersiain]

Maths - I posted numbers above, £350K house (maybe £400K now due to crazy market) and he also has £100K of assets (shares and cash). When he purchased the house in 1999 it was will his money, there was no paperwork saying it was a gift or that I had any ownership of it, he merely put me on the deeds as a joint owner, I can't remember if I even signed anything. The "beneficial ownership" statement is in regard to GROB in the eyes of IHT & GROB I have zero "beneficial ownership" as my Father has had all the benefit of the property (he still lives there) and I've had none.

[maths]

Yes, you did provide the figures. I apologise for missing them.

Assuming house worth 400k and cash 100k ie total 500k. Assume there was no gift in 1999 of a beneficial interest. Father dies owning 100% of house (400k) plus cash (100k).
With a nil rate band of 325K and a residence nil rate band of 175k means no IHT on father's death.


A gift with reservation arises only if in 1999 father transferred a beneficial interest (in this case 50%) to you but not if all that happened was that you were added to the legal title.
Under either scenario no IHT is payable. Assuming a 50% beneficial interest was transferred so you own 50% and father owns 50%. For IHT father is treated as still owning 100% for IHT only (as the gift of 50% is a gift with reservation). The IHT position remains as above ie no IHT on father's death.

I would leave well alone.