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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25486
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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if a property is to be gifted and giftor to remain

Resolved Question:

if a property is to be gifted and for the giftor to remain in the property without creating a 'gift with reservation' status I believe a rent is required to be paid by the giftor. does this arrangement need to be notified to HMRC direct (if so how and with which document) or would the payment of tax by the person receiving the rent in the appropriate tax year suffice. would a 'life time lease agreement' be considered to again place the arrangement into a 'gift with reservation' status.
Submitted: 2 years ago.
Category: Law
Expert:  Joshua replied 2 years ago.
Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

Joshua :

Are you able to kindly clarify your proposal of a "life time lease" please? What is proposed exactly by this? Would the donor pay rent under the lease?

Customer:

the donor would pay a bonefide rent but rather than having just a normal lease agreement the agreement would last for as long as the donor wished to remain in the property (if this is legally possible)

Joshua :

Thank you for the clarification.

Joshua :

Finally is the donor's estate above the inheritance tax threshold? Each person is entitled to £325K by way of allowance before tax is due. However if the donor has been widowed it is possible the donor may be able to also claim their spouses allowance which can potentially double the allowance to £650K. Would the donors estate be over the allowance?

Customer:

the property is a farm (small holding really) and is within the 650k allowance at this time but a future valuation may well exceed the personal allowance. I believe the 650k would be the appropriate allowance. I have been told and am aware that CGT may be levied on land gifted over .5 hectare

Joshua :

Thanks. There may be a CGT liability if the land is greater than the CGT area allowance but if it can be shown that the larger area is intrinsic to the property then a greater area can be claimed. e.g. if the larger area cannot be obviously separated from the house but is part of its garden or natural boundaries. e.g. a paddock can easily be separated but splitting a large established garden not so. This can be raised with a surveyor who may be able to assist in arguing a larger area is appropriate.

Joshua :

In terms of IHT, If the estate is not excessively inheritance tax threshold, and there is no issue with regards ***** ***** with reservation. Gifts with reservation only relevant in respect of inheritance tax paying estates and for those estates that did not exceed the inheritance tax allowance are not impacted by the gift with reservation rules.

Joshua :

in addition, if you are concerned that the estate may in the future exceed the inheritance tax threshold, you may wish to consider delaying any decisions until after the forthcoming election because the Tories have indicated that they would be looking to increase the inheritance tax threshold to £1 million for the family home. This policy is presently in its infancy and of course much depends upon who wins power but it may be relevant to your decisions.

Joshua :

in addition, do remember that inheritance tax is only charged on any amount over the inheritance tax threshold and so in the event the estate does increase in value, and inheritance tax does not rise, as it historically did each year until the recent past where has been frozen, only that portion above the inheritance tax threshold is liable to tax at 40%. accordingly, if the estate is only worth a small amount above the inheritance tax threshold, the tax incurred may be relatively limited and accordingly not worth attempting to rearrange the donor's affairs to save what may be a very limited amount of tax.

Joshua :

However, that all said, in order to avoid the gift with reservation rules, you are quite correct that the donor would need to pay a market rent in respect of any part of the property they choose to give away.

Joshua :

the donor could choose to give away the whole or any part of the property. They could make that gift subject to a right of occupation on their part to give and security of tenure. Whatever the donor chooses to do if he continues to live in a property or benefit from it, he must pay a market rent in respect of the interest he gives away in the property. tthere is no need to submit a tax return or notification to the revenue at this stage but it is important to be able to prove in the future that the market rent paid was indeed a market rent and to this end, it is worth retaining a RICS qualified surveyor to value the interest given away and recommend a market rent payable for it.

Joshua :

this should be reviewed periodically in line with inflation

Joshua :

providing the valuation report obtained from the survey is retained and market rent can be evidenced for the entire period the donor remains an occupational benefited from the property, this will be sufficient evidence to defend against any claims the revenue make that inheritance tax is due under the gift with reservation rules.

Joshua :

Does the above answer all your questions or is there anything I can clarify or help you with any further?

Customer:

Thank you for that. extremely useful info. though i am not sure I understood the paragraph starting 'in terms of IHT......'. I have commisioned the services of a RICS agent for both property and rental values. However having asked the above questions to various so called experts i have as you may have guessed been less than satisfied with their knowledge and responses. Thank you

Joshua :

I am glad the above was of assistance. Ref the paragraph you mention - I notice a small typo which I agree makes it difficult to follow. My apologies. I will repost.

Joshua :

gift with reservation or any relevant to estates that exceed the inheritance tax allowance. For example, if I own a £200,000 house and no other assets and I choose to give it away to you but continue to live in the property this would be a clear gift with reservation. However, what the gift with reservation rules achieve is that they allow the revenue to ignore my gift to you of my property if I continue to benefit from it and treated as still being part of my estate notionally for the purpose of calculating inheritance tax. However, because my estate was only worth £200,000, my state is not liable to inheritance tax and therefore we give with reservation rules do not result in any tax. In other words a gift with reservation rules are in practice in relevant for estates worth less than the IHT allowance.

Joshua :

I hope that is clearer?

Customer:

yes thank you

Joshua :

If I can assist any further as the situation develops please do not hesitate to revert to me

Joshua and other Law Specialists are ready to help you