GWR Question - Gifting house, then paying rent

GWR Question - Gifting house, then paying rent

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Is this okay? Mum gifts house to son and mum remains living in the house. However, mum pays rent at market rate. Son is taxed 20% on rental income and gives net back to mum. Would the gift to mum be treated as a PET?

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By johngroganjga
15th Dec 2016 20:57

No because the payment of rent is a sham so doesn't count to exclude the property from the mother's estate.

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Portia profile image
By Portia Nina Levin
16th Dec 2016 10:33

John's correct that if M pays S say, £500 per month and S then gives M £400 straight back, HMRC are likely to argue that rent is not really being paid.

However, if M pays S the £500 each month and every two or three months S gives M some cash (which just happens to average £400 per month) to help her out with bills and things, that argument is unlikely to arise.

I do not think that it is necessarily a sham though, just because it appears to offend John.

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Replying to Portia Nina Levin:
Stepurhan
By stepurhan
16th Dec 2016 14:11

Portia Nina Levin wrote:

I do not think that it is necessarily a sham though, just because it appears to offend John.

Just because you can come up with a way to disguise the true effect doesn't mean it's not a sham.

"just happens to average £400 a month" indeed. The very fact you'd use this phrase shows you know it to be ethically and morally suspect to try to hide the true position in this way. Shame on you.

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Replying to stepurhan:
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By Portia Nina Levin
16th Dec 2016 14:28

I was actually saying that the position originally described described by the OP was not necessarily a sham, as John suggested.

The point is that if there is a tenancy agreement under which M is legally obliged to pay S, say £500 per month, which is then paid into S's bank account each month, and then S chooses to immediately give M £400 by transfer back into M's bank account, then that is not a sham.

It does invite argument, more so than what I am suggesting, assuming a similar obligation on the part of M to pay rent and a lack of obligation on the part of S to provide M with anything.

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By Adam12345
16th Dec 2016 13:02

Yes, it would be treated as a PET, whether or not it will be included in the death estate as well is another question.

If it were to be included in the death estate (i.e. GWR rules apply), then HMRC will give relief for the IHT due on the PET on death, to avoid the double charge to IHT.

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By michaelblake
21st Dec 2016 17:00

A GWR is only avoided if, following the gift, mother gives full consideration in money or money's worth in return for her occupation of the property (FA 1986 s102B(3)(b)).

The questions you need to ask therefore are (if it came to it) would (a) the personal representatives of the deceased estate or those advising them, feel comfortable in completing an inheritance tax return for the deceased estate, without declaring a GWR, and (b) if they did, and the matter was enquired into by HMRC, would the PRs be able to convince HMRC, or a tribunal (and would perhaps the son giving evidence under oath be able to state truthfully) that the payments being made by the son to the mother were unrelated to the decision by the mother to gift the house to her son.

If, as the posing of the question suggests that they are, the payment of rent by the mother is dependent upon payments being made back to her by the son, and the PRs did not declare a GWR they would in my view be open to the charge that they had been careless in completing the IHT return. See for example the standards of care expected by the HMRC toolkit at https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

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By Portia Nina Levin
11th Jan 2017 13:11

Good news people. The DEFINITIVE answer to this question has now been provided by that clever Tim Good and his colleague Giles Mooney, here:
https://www.accountingweb.co.uk/tax/personal-tax/any-answers-answered-fu...

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