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35

That recent SDLT gift & gift back question

https://uk.practicallaw.thomsonreuters.com/Document/Ib5f7eca8957311e79bef99c0ee06c731/View/FullText.

Didn't find your answer?

I note a gift and sale back by the donee to the donor is considered unobjectionable in the link below (subscription needed) to avoid the 3% SDLT surcharge (for the donee on his new purchase), so on that basis a gift & gift back seems OK too. 

https://uk.practicallaw.thomsonreuters.com/Document/Ib5f7eca8957311e79be...(sc.Search)

See also this from link below:

"`disposed of`

In general, the purchaser must have disposed of either the freehold of a previous main residence or a lease of their previous main residence which had a term of more than 7 years when it was granted.

The disposal of the previous main residence does not have to be by way of sale, although that is likely to be the case for most individuals. For example the property may have been gifted to someone else or transferred under a court order as part of a divorce settlement."

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdlt...

It could be sold back for £1 of course. I note TD's comment about exchanges and I do not think that would be relevant as it's the same piece of land and not a true exchange (and it's unenforceable in any event).

 

Replies (35)

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By Tax Dragon
27th Jul 2020 22:00

The law I referred to does not mention "exchange". Nor enforceability.

And a gift and buy back (at full value) would be distinguishable from a gift and gift back, since the transactions are then not in consideration for one another. (And indeed it may help with the no-interest-in-the-property point, though I don't know enough to comment on that, if I'm honest.)

I still don't know what you meant in the other thread by "conditional". If the condition is not enforceable, it doesn't really feel like a condition.

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Psycho
By Wilson Philips
27th Jul 2020 22:30

It is still ignoring the fact that if the original gift is in fact a gift the donor runs the risk of waving goodbye to the asset for good.

If there is a condition that the asset will be gifted/sold back then the “gift” is not, in the true sense of the word, a gift.

But, as usual, the article is completely irrelevant to the original question- which was about the donor avoiding the additional charge by temporarily divesting himself of the property in what would appear to be pre-ordained transactions undertaken specifically with a view to avoiding tax. In the article, the two transactions are not linked in such manner.

For the avoidance of doubt, I do not disagree that two genuine gifts should ‘work’. The problem is the risk that the second gift may never materialise.

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Replying to Wilson Philips:
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By Tax Dragon
27th Jul 2020 22:25

To clarify, my continued use of the word "gift" does not mean I disagree with you. It's a hangover from the convenient shorthand in the other thread.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
27th Jul 2020 22:29

To clarify, I was not responding to you.

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Replying to Wilson Philips:
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By Tax Dragon
28th Jul 2020 06:33

Thank you for that clarification, as in the other thread your comment was directed at me.

I've tried and failed in both threads to get Justin to explain what he means about the initial gift being conditional. As I said previously and referenced above, the legislation I quoted applies itself where one or more land transactions are entered into wholly or partly in consideration of one or more other land transactions. That final "other" refers to the transactions, not the land. So Justin's point about it not being an exchange is irrelevant (the paragraph is headed "exchanges" but I was taught to ignore headings in interpreting legislation).

There has to be a risk (as it reflects the reality) that, if there is a premeditated gift and gift back, then the one will be seen as consideration for the other. So I would not go as far as you in saying it "works" even if the gifts appear genuine (/unconditional). I really can't see how the "planning" works if the first gift is conditional (though I don't know what that means). [Justin would have been quick to point out if I was wrong on the basis that "consideration" can arise only under an enforceable contract. That question does whir in my mind, but I think consideration has a much wider meaning... and Justin has not corrected me.]

Finally, as I say below (in this forum's format, despite it being timed earlier than your comments), the consideration issue is not an issue in the situation in the article, because there clearly was no premeditation. You would not premeditate(*) a series of transactions to avoid a tax charge that did not exist, and the effect of which would be to create tax charges that would not otherwise arise. That is, after all, what has happened in that article.

(*) I mean implement. The gift/gift back could trigger tax charges that would not otherwise arise. Justin talks about premeditating such a plan. But he would not himself implement it.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
28th Jul 2020 11:42

I agree entirely. If the gifts "appear" to be genuine, but in reality are not, then it should not "work". It would, IMO, only "work" if the original gift were to be made without any expectation that the asset mihgt be gifted back at some time in the future.

Apart from the comments elsewhere about Indian givers, I'm still waiting for someone to explain what a "conditional gift" is. As in being made on condition of some future performance, especially where that future performance is a return of the asset. Easily distinguished from gifts involving past performance - "Pass your exams and you'll get a pressie."

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By Tax Dragon
27th Jul 2020 22:21

My first reply was made without looking at your supporting evidence.

May I suggest that the scenario in that article, in which an outright gift was made some years ago and now the property is to be bought back at full value in an unrelated transaction is distinguishable (really very easily distinguishable, in fact, there's no choice but to distinguish it) from one in which a conditional gift and gift back are undertaken specifically to avoid a tax charge.

That is to say, your evidence is weak.

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By Justin Bryant
28th Jul 2020 08:16

I note WP's point, but why should it be acceptable SDLT avoidance to transfer back a gifted property for certain buyers & not others? There is no logic there. Either it's OK for both types of buyers or neither.

Anyway, my view remains that this works if done as two genuine transactions per my previous comments (in the blocked thread) since the Ramsay principle cannot ignore genuine transactions (and HMRC would of course agree with that re my company gift & gift back example and if the donor & donee dropped dead within 7 years etc.)

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Replying to Justin Bryant:
Psycho
By Wilson Philips
28th Jul 2020 11:32

You’re missing the point that the potential SDLT charge is in entirely different circumstances. In the one case on a subsequent transfer made some time after an entirely unconnected transaction. In the other, on the first of two connected transactions being undertaken solely to avoid tax.

I agree that if the gift and gift back are genuine unenforceable gifts then it might work. What you have failed to address in that case is the risk that the gift back might not happen.

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Replying to Wilson Philips:
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By Justin Bryant
28th Jul 2020 14:34

It obviously goes without saying that that is the client's risk and they should therefore choose their donee wisely (especially given the current Covid-19 situation)!

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Replying to Justin Bryant:
Stepurhan
By stepurhan
28th Jul 2020 14:51

If the client "chooses their donee wisely" so they know that the property will be "gifted" back, then it is not a genuine separate transaction is it. The first "gift" is only being done because the later "gift" is considered certain at the outset.

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Replying to stepurhan:
Psycho
By Wilson Philips
28th Jul 2020 15:34

Quite - I have a property (my home) worth say £750k. It would be sheer folly to risk losing both the asset and my home in order to save a few thousand in SDLT by giving away the property in the hope that the donee would (a) not kick me out and (b) gift the property back to me at some uncertain time in the future. I'd be interested to learn from Justin how things could be implemented correctly to avoid such a scenario.

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Replying to Wilson Philips:
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By Tax Dragon
28th Jul 2020 15:18

Wilson Philips wrote:

Quite - I have a property (my home) worth say £750k. It would be sheer folly to risk losing both the asset and my home in order to save a few thousand in SDLT by giving away the property in the hope that the donee would (a) not kick me out and (b) gift the property back to me at some uncertain time in the future. I'd be interested to learn from Justin how things could be implemented properly to avoid such a scenario.

Gives a new meaning to home insurance - please insure me against losing my home if the gift is not reversed... don't worry, it's fully insurable, my gift was conditional. (PS I chose wisely.)

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Replying to stepurhan:
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By Tax Dragon
28th Jul 2020 17:02

stepurhan wrote:

If the client "chooses their donee wisely" so they know that the property will be "gifted" back, then it is not a genuine separate transaction is it. The first "gift" is only being done because the later "gift" is considered certain at the outset.

The question of whether consideration had to be contractual was whirring in my brain while I was rubbing the sleep out of my eyes this morning.

I've just had a quick look... and find I need to take a step back, since the phrase "'contract' includes any agreement" litters the SDLT part of FA2003. Seems to me that the planning cannot work (to borrow Wilson's word) without an element of deception. IIRC Paul called it out as evasion on the other thread. I'm coming to the view that he is right.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
28th Jul 2020 17:33

If you manage to successfully deceive then I imagine that Justin would consider that to be correct implementation. Incorrect implementation would result in your being found out.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
28th Jul 2020 15:33

Is "choosing wisely" what you mean by "implementing correctly"?

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
28th Jul 2020 15:10

Here is a lesson in not choosing wisely.

https://www.youtube.com/watch?v=c3RN9zz77Cs

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Replying to DJKL:
Psycho
By Wilson Philips
28th Jul 2020 15:13

How did I know that would be the clip before even clicking on it :¬)

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
28th Jul 2020 15:19

ESP- no, can't be that, ESP is surely the abbreviation for some tax break.

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Replying to DJKL:
Stepurhan
By stepurhan
29th Jul 2020 09:09

DJKL wrote:

ESP- no, can't be that, ESP is surely the abbreviation for some tax break.

Extra Statutory Pension?

I too knew what the clip would be, but it was still worth posting.

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
28th Jul 2020 15:13

Duplicate

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Oaklea
By Chris.Mann
28th Jul 2020 10:27

And for anyone visiting the forum, for the first time, this type of exchange is the driving principle (IMHO).

On these occasions, it's a pleasure to be a simple and humble, spectator.

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Replying to Chris.Mann:
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By Tax Dragon
28th Jul 2020 10:53

And I clearly shouldn't reply (even in my pink pyjamas) at 6:33. Reading back, it looks as if at that time of day there's definitely still sleep in my eyes. Or brain. Or both.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
28th Jul 2020 15:23

"She'll be coming round the mountain
When she comes,"

springs to mind

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By Justin Bryant
29th Jul 2020 09:29

The non-Ramsay point has already been made in the blocked thread in the link below and I assume the usual suspects above haven't bothered reading that (or are just ignoring it):

https://www.accountingweb.co.uk/any-answers/gifting-property-to-avoid-ad...

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Replying to Justin Bryant:
Stepurhan
By stepurhan
29th Jul 2020 10:38

You appear to be ignoring the repeated point that the two "gifts" are clearly linked, and therefore your claim that they are two genuinely separate transactions is a false starting point. The original "gift" would not happen if the "giver" did not expect to receive the property back. This is fundamental to the argument.

Bringing out a case where there were two genuinely separate transactions does nothing to advance this.

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Replying to stepurhan:
Psycho
By Wilson Philips
29th Jul 2020 10:47

And a case where the party wishing to avoid the SDLT charge is quite different to the party in the question in hand (in the one case it is the donee, in the other it is the donor). Just another example of Justin citing cases that at best offer no support to his arguments but which often actually counter his arguments.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
29th Jul 2020 10:43

What you have yet to explain to the "usual suspects" is how you would implement correctly the arrangements - without any deception - in order to avoid both the additional SDLT charge and the risk of losing the asset. I assume you haven't bothered considering the point (or are just ignoring it).

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Replying to Justin Bryant:
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By Tax Dragon
29th Jul 2020 11:17

Justin Bryant wrote:

The non-Ramsay point...

No-one has mentioned Ramsay and non-Ramsay (whatever that is) apart from you. It's entirely possible that the scheme avoids the 3% hit (thus "works" - your word [sorry Wilson for blaming you for its first use earlier!] in that regard). But who cares about the 3%, when it's dwarfed by the other charges? Since stepurhan has made the point about SDLT on the so-called gifts (which charge does not rely on Ramsay, obviously) far more eloquently than I originally did, I refer you to his remarks in that regard.

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By Tax Dragon
29th Jul 2020 11:30

This whole plan is a bit like paying insurance premiums of £5,000 to cover a potential liability of £50.

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By Paul Crowley
29th Jul 2020 18:16

Does anyone remember covenanted income?
Must be a gift, no reciprocity.
A real gift
Does anyone remember the Accountancy Age regular reports of covenant groups being discovered and the tax employee and the accountant members being prosecuted and loads of publicity?
Not direct A to B's son and B to A's son, but the web ended up with all dads making a covenant and all sons getting covenenanted income, and guess what: spread over time.
Well done HM Inland Revenue for discovering tax evasion.

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By Justin Bryant
30th Jul 2020 08:55

I am not going to plough though all the garbage, clueless comments above, suffice to say that only TD has made any sensible comment in that if it's incompetently implemented (think about how your clients ask for s138 clearances for a clue) then yes, it could conceivably be an exchange in front of a numtpy, HMRC-biased FTT judge with bad legal representation.

Of course, if the gifted property is overseas, then that potential problem issues falls away entirely.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
30th Jul 2020 09:54

That last sentence is an utter irrelevance, as per usual. (And in any case, it is wrong, as per usual.)

You indicate, correctly, that improper implementation could cause a problem. That is rather self-evident. What you have singularly failed to do is give any suggestion as to how one might correctly implement the transactions so as to involve two genuine, unenforceable, gifts yet avoid the risk of losing the asset. That’s not garbage - it’s a statement of fact.

The fact that you have to resort, as you always do, to describing others’ comments as garbage and clueless -(and claiming that you can’t be bothered to read them) - just underlines the weakness in your own arguments.

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Replying to Wilson Philips:
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By Justin Bryant
30th Jul 2020 09:17

I assume you've never done a s138 clearance in that case and I guess you're a bit upset at being criticised for not having a clue about SDLT - which is clearly the case elsewhere. See:

https://www.accountingweb.co.uk/comment/790159#comment-790159

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Replying to Justin Bryant:
Psycho
By Wilson Philips
30th Jul 2020 09:30

Two things. I have no problem with criticism - especially when coming from you. Because it's not really criticism, is it - just insults.

And what the heck does a s138 clearance have to do with anything?

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