Mother and Father gifted quarter shares in the family home in 1995 to their two (adult) children. The intention was to take half the value of the family home out of their estates for IHT purposes as long they survived 7 years from the date of the "gift". The solicitors instructed to deal with the transaction told the parents the gift would be ineffective for IHT purposes due to the gift with reservation of benefit rules however the transaction went ahead and having checked the land registry website all four individuals are now listed.
The problem is the children where not told of gift at the time and are still ignorant of the facts even now.
In light of the pre owned assets regs the parents are considering whether to unravel the transaction.
The queries are:-
Is the gift in 1995 binding - how can there be acceptance if the children knew nothing about it ?
If it is binding how will the pre owned assets regs apply to part shares in an asset ?
If it is binding then i cant readily see how the transaction can be unravelled since a capital gain on the chilren will arise if they try to give their quarter shares back to mother and father.
This seems a right mess - any ideas ?
simon
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A right mess best left alone?
No of course not - just a weak joke - for a gift to be legally binding on the donor the law requires two things - donative intent, which certainly seems to be present and delivery - constructive or actual. In registering the title of the children constructive delivery has taken place so looks like the gift is binding. Acceptance is only necessary for a contract to come into existence where there must be a meeting of the minds. There is a principle of law that you cannot be compelled to accept a benefit against your will so one possible route out might be for the children to disclaim the transfer when the parents interest would reverty to them. That would need to be checked out with a lawyer specialising in this rare area - not your High Street conveyancer. Another might be to apply to the courts for recission, setting the original gift aside because the parents were unaware of its true effect - however this would probably only be feasible if they had NOT been told about the ineffectiveness of the gift for IHT purposes. This would also need to be checked out and would be even more expensive than the first option.
So having completed the legal formalities unscrambling is likely to be very difficult. However the key lies in your comment that the property would not have left the estates of the doting (or should that be dolt) parents becuase of the reservation of benefit rules. As the property is still treated as part of their estates for IHT purposes the new pre-owned asset rules DO NOT APPLY. If the new rules did apply it would be possible to elect for the asset to be treated as though it continued to be part of their estates and avoid the IT liability that way.
There certainly is a mess - not the least of which being the crazy exposure to CGT that this exposes them to. The disclaimer idea above would avoid that as the property would revert back to the parent's estate, but how likely would the revenue accept the argument that the children were blissfully unaware of this when their names have been on public record for the best part of a decade as joint owners.