Gift of cash but with restrictions

Can an individual reduce his estate but protect his beneficiaries inheritance?

Didn't find your answer?

I have a client who is wanting to gift circa £100K to his sister to assist her in buying a property. But, on his sisters death, he would like this money, increased in line with the increase in property value, to be to be left to his two children.

As I understand it, he is trying to reduce his estate but not reduce his children's inheritance.

Is this even possible?  Is a gift of cash with some sort of restrictions likely to fall within GROB rules?

Any suggestions as to how he may be able to achive his aim?

Many thanks in advance for your thoughts.

Replies (31)

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By Anonymous.
07th Oct 2020 16:18

Looks more like a loan than a gift if the sister has no say in what happens on here death.

How would it be documented??

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Replying to Anonymous.:
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By paul.benny
07th Oct 2020 16:47

I first thought loan. But if client wants their monies to increase in line with property values, it actually looks more like co-ownership.

That's perfectly feasible. But you then have to think about who bears all of the costs of ownership, what happens if sister wants to move house, alter the property.

And however it is structured, what happens to client's share of the property on their death? Can the estate or heirs force sister to repay? What would be position of spouse if sister has married ?

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Replying to paul.benny:
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By Anonymous.
07th Oct 2020 16:50

paul.benny wrote:

I first thought loan. But if client wants their monies to increase in line with property values, it actually looks more like co-ownership.

That's perfectly feasible. But you then have to think about who bears all of the costs of ownership, what happens if sister wants to move house, alter the property.

And however it is structured, what happens to client's share of the property on their death? Can the estate or heirs force sister to repay? What would be position of spouse if sister has married ?

All good points.

The documentation/structure is obviously crucial to any analysis.

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By Paul Crowley
07th Oct 2020 16:20

I think he wants to much.
What happens if sister marries?

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By Justin Bryant
07th Oct 2020 16:30

An IIP in favour of sister with remainder to children.

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By CJaneH
07th Oct 2020 16:40

I think either you set up a trust with all the expenses and complications that involves, plus most members of the general public do not understand them, or make a loan to the sister.

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Replying to CJaneH:
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By Justin Bryant
07th Oct 2020 16:46

That hardly reduces his estate does it?

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By The Dullard
07th Oct 2020 16:48

Cash doesn't fall within the GROB rules. The reality is though that he can't make the sister do diddly-squat after his death unless it's a loan or trust property.

Set up a trust for the kids, and the trust takes an equitable interest in the sister's property in exchange for the cash. Get the client to go and see a decent solicitor. You won't find one here..

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Replying to The Dullard:
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By Rgab1947
12th Oct 2020 09:42

"Get the client to go and see a decent solicitor. You won't find one here."

he, he, like this one.

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By The Dullard
07th Oct 2020 16:49

Double-click!

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By The Dullard
07th Oct 2020 16:51

Wait, I misread the question. If the sister chooses to leave an amount in her will to his kids that is calculated by reference to their father's kind gift to her back in 2020, I don't see a problem.

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Replying to The Dullard:
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By Anonymous.
07th Oct 2020 17:01

The Dullard wrote:

Wait, I misread the question. If the sister chooses to leave an amount in her will to his kids that is calculated by reference to their father's kind gift to her back in 2020, I don't see a problem.

We don't see enough positivity like this on the site! A welcome change.

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Replying to Anonymous.:
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By raju m
12th Oct 2020 10:38

Gifts with conditions are normally disputed by inland revenue and not allowable as tax free transfers under the 7 years rule.

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Replying to The Dullard:
RLI
By lionofludesch
07th Oct 2020 18:40

The Dullard wrote:

Wait, I misread the question. If the sister chooses to leave an amount in her will to his kids that is calculated by reference to their father's kind gift to her back in 2020, I don't see a problem.

Is the problem that the sister may renege on the agreement ?

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Replying to lionofludesch:
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By WhichTyler
07th Oct 2020 20:35

Or sells the house and blows the cash?

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Replying to lionofludesch:
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By Cat's whiskers
08th Oct 2020 10:14

Agree it's risky!

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Replying to lionofludesch:
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By Paul Crowley
08th Oct 2020 10:22

Any Will is worthless if she marries.
And how can you write a calculation of house price increase into the will

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By fawltybasil2575
07th Oct 2020 18:53

@ Cat's whiskers (OP).

(1) In considering the range of possible solutions, I am hampered by having no knowledge of the ages of the four parties (my initial thought is that the solution will be materially different if the sister is aged, 30 for example, from if she is aged 88). Can you oblige please with ages (actual for your client - preferably actual but, if not known, estimated, for the other three parties).

(2) In intending no offence to The Dullard (his post at 16.51) and if I understand the suggestion in that post correctly, it appears to disregard the possibility of the sister’s INITIALLY effecting a will in which she bequeaths monies to the client’s sons, but THEN later amending that will to cancel those bequests.

(3) My initial thought is that the client should give HIS SONS (NOT his sister) £100,000; and that the sons then very shortly thereafter lend that same £100,000 to the client’s sister, under a loan agreement under which, upon the sister’s death, the client’s sons receive from the Estate £100,000 PLUS the ”percentage increase in value of the property”. To cover the possibility that the property may have been disposed of prior to her death, then in those circumstances the percentage increase can be (the difference in answer is unlikely to be substantial) based upon the average national property increase factor (several indices are available).

[It is unlikely that this arrangement will be afflicted with the factor per my paragraph (2) above if, as would normally be the case, the client will be leaving his sons an amount which materially exceeds £100,000, in his will: in the hopefully very unlikely event that his sons renege on lending the £100,000 to his sister (their aunt) then his will can be amended accordingly].

The above are my initial thoughts, but may be changed entirely depending (i) upon the age factor per paragraph (1) above, and (ii) upon the wise counsel of previous posters’ above, castigating me for flaws in my recommendations.

Basil.
EDIT. My above post prepared before seeing Lion's 18.40 post [my paragraph (2) refers].

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Replying to fawltybasil2575:
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By Tax Dragon
08th Oct 2020 07:15

Obviously any profit on a loan is taxable as interest. (DJKL will castigate me for asking [it'll never happen!], but what happens if sister's property reduces in value before she dies? Is there negative interest?)

FWIW, I think if you read The Dullard's three extant replies together, they summarise the answer to the question pretty well.

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Replying to Tax Dragon:
RLI
By lionofludesch
08th Oct 2020 07:26

Tax Dragon wrote:

FWIW, I think if you read The Dullard's three extant replies together, they summarise the answer to the question pretty well.

I'm not keen on the "Double click" one personally.

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Replying to lionofludesch:
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By Tax Dragon
08th Oct 2020 07:59

You are always allowed to cross out the words you don't understand, Lion. That's my approach to exam questions. Legislation. Life.

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Replying to Tax Dragon:
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By Cat's whiskers
08th Oct 2020 10:13

I had considered the loan option and the profit on the loan being taxable - would it be taxable on the estate?

Also will flag the possiblility of house values reducing. Unlikely but possible.

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Replying to Cat's whiskers:
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By Tax Dragon
08th Oct 2020 10:44

Cat's whiskers wrote:

would it be taxable on the estate?

Let's suppose your client makes a (documented, enforceable, with repayment deferred until sister's death) loan today, dies tomorrow, his sister buys a property next week, dies in 2030.

I'm gonna say the debt would have been passed out of the estate to your client's children before 2030. So, no tax on the estate - except for the IHT on the then value of the debt, which may well be no more than £40k, I don't know. Incidentally, there's an IHT saving right there, because £40k (or whatever the right number is), is less than £100k.

Your client's children inherit a £100k debt with a base cost of £40k. It's second hand, so not CGT exempt. It might also be liable to tax under what is currently Pt4 Ch8 ITTOIA 2005.

All this and more is doubtless why Basil seems to recommend making an unconditional gift to the children and hoping they invest in aunt's property. I don't necessarily support that - it's not Awebbers' station to give such advice, and obviously such a course of action would have a whole array of other factors.

The trust route is the obvious approach, with suitable advice and caveats.

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Replying to Tax Dragon:
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By Tax Dragon
08th Oct 2020 10:47

Tax Dragon wrote:

The trust route is the obvious approach, with suitable advice and caveats.

Oh irony... the way I've expressed that sounds like it's a recommendation. Please, no. Put that down to careless wording.

Make sure you understand the issues of each of the possible approaches.

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Replying to Tax Dragon:
paddle steamer
By DJKL
08th Oct 2020 10:19

Not at all, I accept it is possible for house prices to go down as well as up, all depends upon one's chosen time window. (In fact whilst up here some prices are currently rising there is a market suspicion this could cease fairly soon and these markets may turn)

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Replying to fawltybasil2575:
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By Cat's whiskers
08th Oct 2020 10:10

fawltybasil2575 wrote:

@ Cat's whiskers (OP).

(1) In considering the range of possible solutions, I am hampered by having no knowledge of the ages of the four parties (my initial thought is that the solution will be materially different if the sister is aged, 30 for example, from if she is aged 88). Can you oblige please with ages (actual for your client - preferably actual but, if not known, estimated, for the other three parties).

My client is late 60s and I assume his sister is similar, possibly a few years younger. His kids are late 30s.

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By Cat's whiskers
08th Oct 2020 10:14

Thanks everyone for engaging with my query. Some excellent points to go back to my client with.

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Replying to Cat's whiskers:
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By paul.benny
08th Oct 2020 11:45

How nice to see someone who asks a question engaging positively with the responses, coming back with more information and thanking those who took the time to answer.

If only more did this.

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By normanwl
12th Oct 2020 13:49

He should see a good solicitor. Adding to others comments. He could take a share in the ownership of the property. This is not unusual in when one party does not have enough money to buy the property. Solicitors have a standard contract for this. The standard contract covers with selling and moving. (My son owns a small percentage of our house). He could then gift that ownership to his child or children. Since his sister will then have to seek their agreement to move or when she passes on his children have access to the gift.

But please consult a solicitor with tax knowledge.

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Morph
By kevinringer
13th Oct 2020 13:16

This question is not an accountancy or tax question, it's a legal question. You need to consult lawyers.

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By justsotax
13th Oct 2020 16:32

a gift with restrictions - isn't that an oxymoron....

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