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Disclaim a gift for CGT base cost purposes

Can one disclaim a gift made 9 years ago

Didn't find your answer?

In order to avoid care home costs, Father and Mother's family home (purchased for £15k) was gifted to Son and Daughter In Law.

I don't know for sure what was done about CGT and SDLT at the time (property was worth approx £300k in 2009), but presumably they claimed PPR and that was that. Consideration actually paid was nil.

Before I put in client in touch with our learned friends, and their very expensive ticking clocks, I'd like to know whether anyone has any experience as to whether today, 9 years after the gift, and after both Mother and Father are deceased, if it is possible for Son and DIL to disclaim the gift to benefit from the tax free uplift in base costs? Total estate was anyway below the IHT threshold. Value at death was around £525k.

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By jcace
13th Feb 2020 19:15

When did son and DIL acquire the property? That's a question of fact.

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Replying to jcace:
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By ShayaG
13th Feb 2020 19:50

Land registry etc. updated in 2009 and Son and DIL did nothing to disclaim the gift in the intervening 9 years.

Father continued to occupy the building rent free until his death this year.

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Replying to ShayaG:
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By jcace
13th Feb 2020 20:09

I believe that you have your answer. It's difficult to rewrite history when later events might make us wish we could.

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Replying to jcace:
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By ShayaG
14th Feb 2020 11:07

I was really hoping someone could point me to either recent experience or relevant case law.

We all have our own sense of "common sense."

According to Google, Abbot CJ in Townson v Tickell said "The law certainly is not so absurd as to force a man to take an estate against his Will. Prima facie, every estate, whether given by Will or otherwise, is supposed to be beneficial to the party to whom it is so given. Of that, however, he is the best judge, and if it turn out that the party to whom the gift is made does not consider it beneficial, the law will certainly, by some mode or other, allow him to renounce or refuse the gift."

As Son and DIL have done nothing that I am aware of to either claim or disclaim the gift - and in fact it has been treated as Father's property for the past 11 years (not 9 as previously stated) - I wondered if they had an argument in law to save 28% tax on a lot of money.

I feel I would be negligent not to explore the possibility.

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Replying to ShayaG:
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By Rammstein1
14th Feb 2020 11:56

Father's estate for IHT, son & DIL have value at original transfer date for CGT. Bad luck.

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Replying to Rammstein1:
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By ShayaG
14th Feb 2020 13:13

I know it's father estate for IHT, but IHT not in play as entire estate + house within the exempt or zero rated band or whatever it is called.

Do you have any experience or case law basis for stating a disclaimer is not possible?

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Replying to ShayaG:
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By Lone_Wolf
14th Feb 2020 12:12

I'm liking your thinking here, but you may be onto plums.

What happened on the original transfer? Did the Son and DIL have to sign anything, or provide anything to father in order for the property to be transferred ? I'm guessing something will have to have been signed by them if it's sent to land registry?

If they have, then that probably constitutes them accepting the gift I'm afraid, and we're only now looking at rewriting history to get a better tax answer.

If there's nothing they've had to sign or provide for the gift in 2009, then I'd say you have a case.

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Replying to Lone_Wolf:
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By ShayaG
14th Feb 2020 12:57

Good point - will check.

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Replying to ShayaG:
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By dmmarler
17th Feb 2020 16:04

If the Land Registry was updated in 2009 showing son and daughter in law, this would mean someone would have filed a form TR1 which would have be signed by the son and daughter in law as recipients... so the transfer cannot be disclaimed. If anywhere it is recorded that the transfer was to avoid care home fees, then its discovery will cause trouble. I would recommend an immediate visit to our friends with the ticking clocks.

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Replying to dmmarler:
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By ShayaG
18th Feb 2020 19:32

deleted duplicate

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Replying to dmmarler:
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By ShayaG
18th Feb 2020 19:30

Makes sense, thank you. I thought this possibly might be the case, but am not au fait with the everyday practicalities of conveyancing.

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By The Dullard
14th Feb 2020 12:06

Maybe there's a deed of trust somewhere saying that son and daughter-in-law are just trustees with mum and dad continuing to be the beneficial owners (until they died). You'd have expected their wills to mention it too, tbh. To be effective, a trust over land needs to be in writing. Find that document and job's a good 'un. Otherwise what Rammstein said.

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Replying to The Dullard:
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By ShayaG
14th Feb 2020 12:58

No, it was a straight up gift conveying the house to Son and DIL to avoid Mother's care home fees (ineffective for IHT, I know - that was never the intention). Their wills don't mention any gift.

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By Paul D Utherone
14th Feb 2020 12:27

One can surely not rewrite history because something done to 'avoid care home costs' has now come back to bite. Also difficult to feel a great deal of sympathy.

To quote from Simons:
"Nobody can be forced to accept a gift, whether one taking effect inter vivos or on a person's death. The converse of this is that the right of disclaimer is extinguished as soon as a gift has been accepted in whole or in part. HMRC state that acceptance of a benefit prevents disclaimer."

They seem to have happily accepted the gift for 9 years, so it's a bit late to try and disclaim now just because it suits for CGT purposes.

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Replying to Paul D Utherone:
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By ShayaG
14th Feb 2020 13:16

Bear in mind the parents avoiding the care home fees (a form of avoidance which I cannot condone on a moral level at all) are not the same as the Son and DIL who would benefit from disclaiming the gift. As the father lived rent free in the house since the sham gift, I don't see a clear basis for saying they happily accepted it unless they signed up with the original conveyance.

I feel no sympathy at all beyond my professional obligations to my clients. I don't think they feel terribly strongly about it either, but nobody likes to pay tax unnecessarily.

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By craig__2k4
14th Feb 2020 12:35

https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-...

I hope they paid any care home fees if required.

In regards to the initial question, my gut agrees with the previous posters, the base cost would be 2009.

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Replying to craig__2k4:
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By ShayaG
14th Feb 2020 13:10

I completely agree on a personal level. Someone (you and I and the other taxpayers) will have to pay for care, and this is a widespread abuse that my generation will have to pay for, and which is tolerated only (IMO) because baby boomers dominate elections. But my political convictions on what happened 10 years ago are professionally irrelevant.

If my clients did sign somewhere to confirm acceptance of the gift, I very much doubt they have an arguable case to have and eat their cake. But if they didn't have anything to do with a gift which was in substance a sham, then they seem to have a right long established in case law - a right which is regularly exercised in connection with IHT mitigation - to disclaim the gift, and benefit from an increased base cost uplift.

I'm not sure whether disclaiming the gift gives the care home or the council which funded the care the right to retrospectively claw back care fees from the estate. It would be logical, if somewhat difficult to administer.

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By Justin Bryant
14th Feb 2020 13:02

You'd have to go to court to get it set aside for mistake etc.

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Replying to Justin Bryant:
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By ShayaG
14th Feb 2020 13:17

Wouldn't a simple deed of disclaimer work?

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Replying to ShayaG:
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By Justin Bryant
14th Feb 2020 13:18

No (those are for wills since the donor is of course dead).

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Replying to Justin Bryant:
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By ShayaG
14th Feb 2020 14:31

If I have understood you correctly, you seem to be stating that disclaimers executed by deed are specifically provided for in relation to inheritance tax legislation. However, I think (based on Towson v Tickell) that there is a common law right for any recipient of a gift to disclaim it "if it turn out that the party to whom the gift is made does not consider it beneficial" which ought to be effective without reference to any legislation.

I don't see any basis to distinguish between gifts and inheritances - the (19th century) judge's words covered " every estate, whether given by Will or otherwise." Could you guide me to the basis on which you make this distinction?

Could you actually go back to the court and get the title deeds and land registry rectified - as they are currently correct anyway wouldn't the request be dismissed as moot?

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Replying to ShayaG:
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By Justin Bryant
18th Feb 2020 13:52

Yes; OK, also for benefits from trusts (e.g. the life interest in the IHTM example in the link in your comment below which would be by far the most common and only then if they have received no benefit), but ignoring that there is no general concept of disclaiming a gift (otherwise there would be no need for people to go to court to rescind gifts for mistake etc.)

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Replying to Justin Bryant:
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By Dib
14th Feb 2020 13:20

Not disagreeing but just for my benefit could they do that if there was no contract (as no consideration)?

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By The Dullard
14th Feb 2020 13:26

Have you consulted with a horse resuscitation specialist?

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Replying to The Dullard:
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By ShayaG
14th Feb 2020 14:02

Apparently.

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Replying to ShayaG:
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By The Dullard
14th Feb 2020 14:41

You might want to hit it again a few times just to make sure.

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Replying to The Dullard:
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By ShayaG
18th Feb 2020 12:14

Alright, I'll hit it again. If you aren't sure whether a client is entitled to rebase their CGT costs at a higher level by disclaiming, and you decide without doing proper research to discount the possibility entirely, are you (a) minimising or (b) maximising the chances of a significant PII claim?

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By Wanderer
14th Feb 2020 13:36

Problem with trying to go down this route is it's all a bit fanciful isn't it?

We're almost led to believe that Mum & Dad gifted their property away years ago without kids' knowledge / consent / signing something.

Then 9 years later, when CGT implications come home to roost only then is situation questioned.

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Replying to Wanderer:
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By ShayaG
14th Feb 2020 14:03

IHT disclaimers are also fanciful, and yet they happen every single day.

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Replying to ShayaG:
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By Wanderer
14th Feb 2020 14:46

Generally not 9 years after the event though.

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Replying to Wanderer:
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By ShayaG
14th Feb 2020 15:33

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm16180 "There is no time limit within which the person may disclaim."

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Replying to ShayaG:
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By Wanderer
14th Feb 2020 17:44

Generally not 9 years after the event though.

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Replying to Wanderer:
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By ShayaG
18th Feb 2020 12:10

How do you know?

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Replying to ShayaG:
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By Wanderer
18th Feb 2020 12:27

Experience.

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Replying to Wanderer:
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By ShayaG
18th Feb 2020 13:25

So you don't actually know. Which is fine. There are many things I don't know.

What isn't fine is the inability to accept that I don't find your unsourced general impressions and opinions dispositive. It's bullying. Be better.

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Replying to ShayaG:
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By Wanderer
18th Feb 2020 13:32

ShayaG wrote:

So you don't actually know. Which is fine. There are many things I don't know.

What isn't fine is the inability to accept that I don't find your unsourced general impressions and opinions dispositive. It's bullying. Be better.


Why, so often, is it that when some people don't like what somebody else says / does they jump to the accusation that the other person is bullying them? It isn't.
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Replying to Wanderer:
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By ShayaG
18th Feb 2020 13:48

HMRC think that no time limit is a "a necessary provision because the person taking the (unwanted) benefit might do so as a result of an unexpected contingency, and many years after the trusts began". After being apprised of this, why did you carry on digging deeper, except to bully through your opinion when it was clearly (a) anecdotal (b) at best irrelevant since it concerned generalities rather than the correct tax position.

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Replying to ShayaG:
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By Wanderer
18th Feb 2020 14:02

All though this thread you've found points, relevant or not, as an attempt to justify your own thought process to reach a particular CGT position.

Several other responders have made comments:-
"It's difficult to rewrite history when later events might make us wish we could."
"DIL have value at original transfer date for CGT. Bad luck."
"I'm liking your thinking here, but you may be onto plums."
"we're only now looking at rewriting history to get a better tax answer."
"it's a bit late to try and disclaim now just because it suits for CGT purposes."
"You cannot have you cake and eat it."

You clearly only want to listen to points that reinforce what you want to achieve. Good luck.

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Replying to Wanderer:
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By ShayaG
18th Feb 2020 14:21

No, I'm looking for any relevant experience or expertise authoritatively pointing me one way or the other; not blarney and holding forth.

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Replying to ShayaG:
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By Wanderer
18th Feb 2020 14:25

Not going to bite.
Good luck.

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By ShayaG
14th Feb 2020 14:44

Decision taken: advise client that he *may* be entitled to £225,000 gain tax free via disclaimer, assuming he did nothing to actively claim the gift, but he will need to take specialist legal advice as it goes beyond the scope of my expertise.

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By Tax Dragon
15th Feb 2020 08:49

Decision made, so this is late, but...

1) If the residue of the estate doesn't pass entirely and equally to the son and his wife, disclaiming the gift (even if that's possible) means they won't immediately get back the thing they are disclaiming. In fact, they won't get it back at all.

2) If they do immediately get back the thing disclaimed, it's not really a disclaimer, is it? Justin says they'll need to go to court, I have no reason to doubt him. Might the Court say that a disclaimer can only have effect if they don't get the property back? Which puts them back to 1).

3) I don't believe that they didn't know about (and therefore tacitly agree to) the gift. You've said care fees were paid. They'd've known at that point, if not before. That was the time to disclaim.

4) Why did you post the question? Seems to me you'd already made up your mind.

5) In relation to 4), I - contrary to what you might be expecting me to say - agree with your answer. This was always a purely legal question and they should always have been taking legal advice about it. This is a tax and accounts forum.

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Replying to Tax Dragon:
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By ShayaG
18th Feb 2020 12:05

1) Residue does pass entirely and equally to Son and Daughter In Law.
2) I do - see my questions to Justin. But that's for solicitors to determine, not me.
3) As you explained in 5), you have no relevant professional experience, so I would be negligent to attach any weight on your beliefs.
4) To see if anyone had any relevant experience or expertise.
5) Tax and accountancy don't exist in a vacuum.

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By davexyz
17th Feb 2020 11:42

Lets examine what is going on here from a tax and legislative perspective

Property was "gifted" or a Potentially Exempt Transfer was made to "avoid" care home fees AND person who gave the gift then resided in the property rent free. The person/s at the initial point in time clearly accepted the PET/gift with or without legal or professional advice

This is NOT a Gift/Potentially Exempt Transfer. The individual making the gift Cannot have any claim or financial benefit from the gift. ie Rent free accommodation would count as a benefit. Market rent should have been paid and the landlord taxed on this income
Gifts where you still have an interest in it, no matter when you’ve given it, don’t qualify as a PET.

For example, if you continue to live rent free in the house you gave your child more than 10 years ago, the house would still be considered part of your estate and therefore subject to IHT. This is known as a gift with a reservation of benefit.
HMRC is quite clear on this

Thus the use of PET to transfer the property would be interpreted as "Deliberate Deprivation of Assets " to avoid care home costs
When might disposal of assets be defined as ‘deliberate’?

When deciding if deprivation was ‘deliberate’ the local authority would look at the following aspects.

Motive/intention: when disposing of assets, was the main reason to avoid care charges?
Timing: there is no set time limit. Most importantly, they will look at the time between the person realising that they needed care and the disposing of assets.
Amount: was the gift a significant amount that would make a difference to your capital limit? The asset would have to be worth a significant amount for the local authority to pursue this action. Giving away a £300,000 property, for example, would significantly affect your total capital.
To attempt to row back on this and raising with HMRC would lay bare the misuse of the PET legislation, the avoidance of care home costs etc

This still may come out if HMRC investigates

You cannot have you cake and eat it. At best pay the CGT and hope it goes unnoticed. The CGT will be less than the care home fees currently avoided. This in no way condones the blatant misuse of PET, the avoidance of care home fees now compounded by the effective beneficiary now trying to avoid CGT and claim the property with IHT allowances

Strong words but HMRC and the local council will have a field day this is how it will be interpreted because it has been stated that this was the purpose and flies in the face of legislation for PET and Care home payments.

A HMRC Investigation would probably nullify the PET transaction,charge tax, impose interest and penalties on the presumed market rent for the period. If the local authority funds someone’s residential care costs and later rules that a person has ‘deliberately deprived’ themselves of assets, they have the power to claim care costs from the person that the assets were transferred to.

Legally, local authorities have the power to recover costs by instituting County Court proceedings. However, a local authority should only do this after it has tried other reasonable alternatives to recover the debt.

This scheme is typical "bloke down the pub"

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Replying to davexyz:
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By ShayaG
18th Feb 2020 12:01

(1) I have no involvement with the Father. My clients are the Son and DIL. I don't know how imminent the care needs were at the time.

(2) I know this gift wasn't effective for IHT. That's not the point, and if it is in point, it actually counters your proposed solution. There's no basis for saying the gift wasn't effective for CGT unless it is disclaimed just becuase it wouldn't have worked for IHT.

(3) I'm not an expert on local authority powers to claw back fees from the deceased's estate, and, whether "intentional deprivation" rules apply themselves if the circumstances fit, or need to be specifically applied by the local authority. I have advised my client of this.

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By pauljohnston
17th Feb 2020 11:25

Perhaps the following may help the discussion. Did the son and Daughter know about the transfer to them? If they did even by Dad saying "we have transferred our house to you to avoid Care Home fees " I feel that they cant refuse the gift at this late stage.

Care Home fees are a very emotive subject and need to be sorted out by politicans but it wont because they are cowards. Thus avoidance as mentioned in this article will continue.

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Replying to pauljohnston:
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By ShayaG
18th Feb 2020 11:55

In regards to your first paragraph, I simply don't know, but I've qualified my advice to the clients to cover this eventuality (if they had done anything to accept the gift, such as signing paperwork, paying for the conveyance, etc).

I agree with your second paragraph wholeheartedly.

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Replying to ShayaG:
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By ShayaG
18th Feb 2020 13:52

I should go on to say that perhaps I have been unduly harsh. According to HMRC in regards to inheritance tax, acceptance of a gift is defined by taking benefit from it.

"Disclaimer cannot be made if the interest has been accepted, i.e. if any benefit has been taken under it. However, where an interest in possession has vested the beneficiary can validly disclaim before any benefit has been accepted."

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm16180

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By kevinringer
17th Feb 2020 13:53

I had a case where parents had gifted legal ownership to their children but in all other respects the property was the parents: the parents occupied it and didn't pay any rent to their children, the parents paid all the bills etc. In effect parents appeared to retain beneficial ownership. CGT is based on beneficial ownership and not legal ownership. So children entered into a Deed of Trust which stated that though the children were the legal owners the parents had always been the beneficial owners. See CG70291. I've had other similar cases, perhaps half a dozen. The Deeds of Trust have to be prepared by a solicitor. One local solicitor refused to prepare a Deed of Trust, all the others were happy to do it.

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Replying to kevinringer:
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By Tax Dragon
17th Feb 2020 14:03

Even if it wasn't too late for the action you suggest, it would turn the care fee avoidance into outright evasion, I would suggest. (Specifically, was the father's interest in the alleged trust disclosed at the time of the claim in relation to the fees?)

Who made that claim?

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