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Buying replacement home - gift with reservation?

IHT if buying replacement home for parent?

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A client's elderly mother is considering gifting her home to our client, who will then rent out the property (after carrying out some work on the property) & our client will be solely entitled to the rental income.

 

Our client originally intended for his mother to move in with him in order that he & his family can care for her; however a property has recently come onto the market close to our client that he thinks would be ideal for his mother whilst she is still able to look after herself.  Our client is considering purchasing this property & moving his mother into it, with the option further down the line for her to move in with him if/when her health deteriorates.

 

If our client bought the property for his mother & she passed away whilst living there, would the mother's gift of her home be treated as a gift with reservation for IHT - i.e. would it be viewed that the purchasing of a replacement home was a reservation of the original gift, even though the son (our client) will be using his own funds to purchase the new home & not selling the original home to fund the purchase?  If the mother moved in with our client, would this also be viewed as a reservation as he has provided somewhere for his mother to live?

 

I have tried reviewing HMRC's guidance & Finance Act 1986, but I'm still not certain so any helpful comments would be gratefully received.

 

The son

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By Tax Dragon
25th May 2021 17:34

Since one of the preconditions of para2(1) Sch20 is not met (the donee doesn't cease to have the possession and enjoyment of any of the property comprised in the gift), I'm not immediately seeing a GWROB. There's probably no POAT either. Though were son in fact to sell the gifted property, that might muddy the waters.

But that's not the end of the IHT analysis, is it? Buying a property and letting someone else enjoy the benefit... even if s43(3) doesn't apply, there may be a CLT on son. And of course with this plan mother abandons her residential property interest - which might be of no consequence, or maybe has good or bad consequence, depending on circumstance. And so on. (And IHT isn't the only tax.)

There're probably decent numbers in play here. Might be worth paying a bit more than Aweb charges you and seeking a second, specialist, opinion. (I initially wrote "more than Aweb costs you" in that sentence, but in fact reliance on Aweb in this sort of scenario could cost you dear. Just saying.)

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Replying to Tax Dragon:
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By Hugo Fair
25th May 2021 18:14

"a bit more than" free? What, double or even treble OP's budget so far?

Given the lack of precision evinced by many on this site (not you I should add), I sometimes feel they'd be happier working in one of those far-flung territories which have what is known colloquially as a "One, Two, Many" language ... where it only contains words for “one” and “two” and - for all other numbers - a single word for “many”.

But completely agree ... when even I can think of a few aspects of the proposed plan that require further investigation, someone who deals with this on a regular basis is going to prove value for money.

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Replying to Hugo Fair:
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By Tax Dragon
26th May 2021 06:17

Hugo Fair wrote:

when even I can think of a few aspects of the proposed plan that require further investigation, someone who deals with this on a regular basis is going to prove value for money.

I was being Pauline (or is it Paulesque?) - packed more into 3 words ("and so on") than the reader would ever unpack. Paul this time has himself pointed out the potential consequence - the plan could even move mother from a situation in which there would be no IHT on her death to one in which IHT was payable on her death.

IHT is not a tax to muck around with. (And IHT is not the only tax.)

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Replying to Tax Dragon:
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By Matrix
25th May 2021 18:14

Tax Dragon wrote:

reliance on Aweb in this sort of scenario could cost you dear. Just saying.)

Good reply. I think this should be said more often on here.

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By Paul Crowley
25th May 2021 17:59

Is IHT relevant?
What is the mum's position.
Any left over allowance from dad?

Best get IHT position clarified. List the assets (current value and costs to date) and get it looked at
Did a recent review with a couple and every idea they had in their plan went the wrong way. They were volunteering to pay more tax than needed if 'the plan' was followed through. Hope they were listening.
Balance up CGT and IHT
IHT is 40% of asset (if payable)
CGT is variable but only on the gain

Solicitors tend to focus on IHT, but tend to be less good on CGT.

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