Gift of share in pied -a- terre. How much rent?

M gifts % of pied -a- terre to D. Both will occasionally occupy. How much rent to avoid GWR rules?

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Mother M owns a valuable one bed pied-a-terre in London. M wants to gift a % to daughter D. M has CGT losses to cover potential gain arising. Property has never been main residence of M

M  and D will share outgoings on an ownership pro rata basis. Both will occasionally occupy.

It seems unlikely that FA86/S102B(4) will apply as HMRC do not accept this usage as "occupying". Full annual rent is £R pa

On what basis does M have to pay D rent to avoid this being a GWR?

i) R

ii) gifted % of R

iii) daily usage on basis of short term rent

iv) some other basis ?

Replies (10)

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By Tax Dragon
07th Aug 2020 14:47

Ooh I love an exam question, especially an IHT one. (Multiple choice so only 2 points forfeit if I get it wrong?)

(i) would definitely do it, so marks for that (the question didn't ask what was the minimum M would need to pay).

IIRC, (ii) is in accordance with HMRC guidance, so does that get me my marks too?

(iii) is the interesting one. It meets s102(1)(b), I'd say, but s102(1)(a) looks much trickier. To my mind, that test is not being met. So... I'm saying not (iii).

(iv) - well, obviously, if (ii) is right, so are many other arrangements, eg gifted % times 2, or plus £10, or....

So... all given answers seem correct [they satisfy ss1a], except (iii).

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Replying to Tax Dragon:
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By Tax Dragon
07th Aug 2020 15:01

There is a other possibility - it's a trick question. Montrose says that HMRC does not accept the use as 'occupation'. So
either s102B(3)(a) means there's no GWR [I'm not comfortable with that reading, but it seems that the "except" in ss2 is accepted as meaning that s102 is excluded when either s102B(3) or (4) is satisfied - even though that's not what it actually says]
or s102B(3)(b) can never be satisfied so the GWR cannot be avoided.

Either way, the answer becomes (v), none of the above.

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Replying to Tax Dragon:
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By Montrose
07th Aug 2020 15:41

Schedule 20 Para.6(1)(a) applies, not S102B, which as you say is not applicable, I think.
The question remains.

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Replying to Montrose:
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By Tax Dragon
07th Aug 2020 16:11

Why does s102B not apply? Did an individual dispose, by way of gift on or after 9th March 1999, of an undivided share of an interest in land?

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Replying to Tax Dragon:
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By Montrose
07th Aug 2020 15:47

Schedule 20 Para.6(1)(a) applies, not S102B, which as you say is not applicable, I think.
For HMRC view on "occupy" see Example 7, second bullet point at https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14333

The question remains.

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Replying to Montrose:
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By Tax Dragon
07th Aug 2020 17:21

This is weird. You mention Sch20 para6(1)(a), but...
- s102B applies
- so s102C applies
- s102C(4) in turn applies Sch20 to this Act, apart from paragraph 6
- so does that mean that para6(1)(a) is disapplied? [Why?!]
- and does that in turn mean that the GWR cannot be avoided?

Interesting question, Montrose. I'd be intrigued to know the final conclusion.

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Replying to Tax Dragon:
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By Tax Dragon
07th Aug 2020 17:35

Tax Dragon wrote:

I'm not comfortable with that reading, but it seems that the "except" in ss2 is accepted as meaning that s102 is excluded when either s102B(3) or (4) is satisfied - even though that's not what it actually says.

It's not what s102B says - but it is what s102C(6) says.

I used to know all this stuff... really is use it or lose it, with tax.

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Replying to Tax Dragon:
RLI
By lionofludesch
08th Aug 2020 23:28

Tax Dragon wrote:

Tax Dragon wrote:

I'm not comfortable with that reading, but it seems that the "except" in ss2 is accepted as meaning that s102 is excluded when either s102B(3) or (4) is satisfied - even though that's not what it actually says.

It's not what s102B says - but it is what s102C(6) says.

I used to know all this stuff... really is use it or lose it, with tax.

Stop talking to yourself.

It's not good for your mental health.

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Replying to lionofludesch:
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By Tax Dragon
10th Aug 2020 08:45

lionofludesch wrote:

It's not good for your mental health.

Thanks, Fluds, it's sweet that you care.

Can't be all bad though. I was going to do a bit of IHT revision over the weekend. But the sun came out.

So I haven't moved on from where I left off - that if para6(1)(a) doesn't apply (and it appears not to), what is there to prevent a GWR?

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By Tax Dragon
19th Aug 2020 16:11

Tax Dragon wrote:

I'd be intrigued to know the final conclusion.

Was there one?

I note example 1(b) in IHTM14332 suggests that "her receipt of rent from him would constitute bona fide possession and enjoyment". Which sounds helpful, but is the language from s102 (the relevant part of which does not apply). As you have noted, s102B (which applies instead) replaces that requirement with one of occupation - and receipt of rent (even lots of rent) is not occupation.

As I see it, the question remains.

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