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Is this a GWR?

Would these 2 scenarios be classed as GWR?

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Do the following fall within gift with reservation rules and be caught within the estate on dads death?

1. Father buys an investment property for his son.  However, the father retains the rental income.

2. Father buys an investment property and this is owned jointly with his son.  The father retains the full rental income.

It would seem to me that number 2 would not be classed as a GWR but number 1 potentially would be.  Any thoughts please?

Thanks

Replies (9)

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By Accountant A
09th Jul 2019 21:58

HMRC IHT Manual says:

"A gift with reservation is one

- made by the deceased,
- of property subject to a reservation
- which was made on or after 18 March 1986
- which was not an exempt transfer. "

How is 2 (receiving the full income from a part share) not a "reservation"?

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RLI
By lionofludesch
10th Jul 2019 08:04

They're both GWRs to me but I'd be jolly interested in your reasoning behind number 2 not being a GWR.

And number 1 only "potentially" being a GWR. As opposed to actually being one.

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By SDGREEN
17th Jul 2019 15:32

Thanks for the replies.
Is their not an exemption for number 2 in FA1986 s102B?
Thanks

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Replying to SDGREEN:
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By SDGREEN
22nd Jul 2019 15:36

Any thoughts on this please?
Many thanks

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Replying to SDGREEN:
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By SDGREEN
22nd Jul 2019 15:36

Any thoughts on this please?
Many thanks

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By Vile Nortin Naipaan
22nd Jul 2019 15:51

In 1 did the father purchase the property and then give it to the son? Or did he give the son cash to purchase the property?

Likewise in 2, how did the son get his half share.

In 1, dependent on the answer to my question, you either have a GWROB or you don't.

In 2, dependent on the answer to my questions, you either have a GWROB or you don't.

If you don't have a GWROB, the son is definitely taxable on the income (or his share of it). If you do have a GWROB, the son may be taxable on the income (or his share of it).

I'm not expecting POAT to touch this (although on the omitted facts it might), but I do think it falls foul of anti-avoidance rules.

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Replying to Vile Nortin Naipaan:
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By Gerry Brown
29th Jul 2019 10:09

I agree that both scenarios involve GWRs. I don't see how section 102B helps.
It is possible to gift an investment property, retain the right to rental income and not trigger a GWR but this would involve using a trustee arrangement.

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By SDGREEN
22nd Jul 2019 16:02

The son was provided with the cash to purchase the property.
I would point out that the father has a higher income tax rate.
He has recently had a cancer scare and I think he is trying to reduce his capital but not his income!

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Replying to SDGREEN:
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By Vile Nortin Naipaan
22nd Jul 2019 16:19

Well if dad provided the cash and the son used the cash to purchase the property, there can't be a GWROB (the cash has been replaced with property, and there is no substitution by virtue of FA 1986, Sch 20, para 2(2)(b)).

Dependent on the source of the cash, POAT might apply.

To the extent that POAT does not apply, I imagine you might get caught under ITA 2007, Pt 13, Ch 5A.

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