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The section does not apply if the right of occupation had arisen more than seven years before the gift. So as long as there was thought to be enough time available there was a potential benefit in creating a lease more than seven years in advance of the anticipated gift of the freehold. In most cases, you need to include the value of the gift at the time it was made. There are some exceptions to this when, for example, a gift is: There is a specific tracing rule for POAT purposes in respect of cash, in addition to the general 'contribution condition' for land and chattels. However, this cash tracing rule only permits the tracing of such gifts made in the seven years before the donor was otherwise first caught by the POAT rules in respect of land or chattels (FA 2004, Sch 15 para 10(2)(c)). The big picture
Most lifetime gifts to non-exempt beneficiaries are Potentially Exempt Transfers (PETs) ( IHTM04057) and so become chargeable only if the transferor dies within seven years of the transfer. If the transferor survives the transfer by seven years, the PET becomes an exempt transfer. If the reservation of benefit ends during the donor's lifetime, the gift is generally treated as a potentially exempt transfer (PET) at that point, which is subject to IHT on the donor's death within seven years (s 102(4)). In the case of an interest in settled property subject to the 'old' (pre-FA 2006) treatment of interests in possession, the lifetime termination of such an interest is treated as a gift for GWR purposes (s 102ZA). Without this provision, the termination would be a transfer of value but not a gift, and the beneficiary could continue using the property without the GWR rules applying. Schemes based on the case were strongly marketed. In general, these required the interest of the spouse to be terminated not on death but during the spouse’s lifetime. In Eversden, the trustees had no overriding power of appointment and that power was essential for the marketed schemes to work. Also, as a general point, the Revenue did not regard death as an ‘associated operation’. They both continued to occupy the property as tenants in common with H occupying under the terms of the settlement until his death 4 years later, after which W continued to occupy on her own. A year later the property was sold and a replacement property bought together with an investment bond, retaining the 5% / 95% split between W and the settlement. W died 5 years later, some 10 years after the original gift into settlement. The Special Commissioners, the High Court and the Appeal Court all held that the relevant date at which the application of FA86/S102(5)(a) (spouse or civil partner exemption) was to be considered was not the date of W’s death, but the date of the original gift into settlement. At that time there was only one gift to H, and since the duration of the spouses proprietary interest is not relevant for spouse exemption to be due under IHTA84/S18, neither was it relevant to FA86/S102(5)(a). This is consistent with the application of IHTA84/49 (1) (interests in possession) to the property settled, which is that immediately after the gift into settlement, the whole of the gifted property is treated as property to which H is beneficially entitled.
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Brothers, sisters, nephews and nieces of the deceased are not direct descendants. If a property is left wholly to one of these family members, then no RNRB is available. If the percentage in step 3 is the same or greater than the percentage in step 2, there’s no loss of RNRB and there’ll be no downsizing addition. Downsizing to a less valuable home Mr Smith dies leaving all his estate to Mrs Smith, who varies the will within two years by an instrument of variation within s 142 such that the property becomes held on a discretionary trust for the benefit of Mrs Smith and her adult children. The variation is treated as made by Mr Smith. On the death of Mrs Smith there will be no reserved benefit subject to the GWR rules. (h) Excluded property a house which becomes the donee's residence, but where the donor either (i) later stays for no more than two weeks each year in the donee's absence, or (ii) stays with the donee for less than a month each year; or To claim the RNRB, there must be an eligible property that is left to direct descendants on death (unless downsizing provisions apply, see below). In the majority of cases, this will be a property that at some point has been the home of the deceased. The individual does not have to be living there at the time of their death. For example, if they have moved into residential care and the property has been let out, it will remain eligible for the RNRB as long as all other conditions are met.
Take away the percentage at step 3 (60%) from the percentage at step 2 (100%) to give a percentage of 40%. Taper relief does not apply to gifts made less than 3 years before death. Inheritance Tax is charged at the full rate of 40%.and the donor occupies the gifted land or enjoys some right in relation to the gifted land ( IHTM14314) Divide the value of the former home at the date of the move or when it was sold or given away by the figure in step 1, and multiply the result by 100 to get a percentage. If the value of the former home is greater than the figure in step 1 the percentage will be limited to 100%. If the value of the home sold is less than the figure in step 1, the percentage will be between 0% and 100%. Under the charging provisions ( IHTM04072), excluded property ( IHTM04251) cannot be the subject of a GWR. For example, where a parent provides cash for their child to buy a home, and this home includes a ‘granny flat’. If the donor lives in this part of the property, this will result in a POAT charge. If an individual fails to pay POAT in their lifetime, the family may find tax, interest, and even penalties are owed upon death. There is a technical argument that when premises are owned by a company, ‘property’ in FA 1986, s 102 refers to the shares that are the subject of the gift such that occupation of the premises by the donor of the shares does not constitute a reserved benefit. I do not share this view and nor does tax counsel with whom I have discussed matters informally.
It will also depend on the value of the other assets left to direct descendants. The downsizing addition cannot be more than the maximum amount of RNRB available if the sale or downsizing had not happened. Gifts with reservation and pre-owned assetst are not exempt from Inheritance Tax because they are not outright gifts. Gifts with reservation For gifts on or after 9 March 1999, s 102A provides that, if the donor or his spouse enjoys an interest that confers entitlement to occupy part or all of the land, the land gifted is property subject to reservation of benefit. So the type of arrangements entered into by Lady Ingram would be caught as gifts with reservation of benefit. A loophole therefore existed allowing married couples to continue to occupy the family home, or to enjoy the benefit of any other property settled, after having given it away. Legislation was then introduced in the Finance Bill 2003 to prevent this. S185 amends FA86/S102 (5)(a) and applies if all the following circumstances are met:In July 2016 John started to pay rent at the market rate to his son. From this date the reservation ceased, and it became an outright gift. During the passage of the 1986 Finance Bill the minister of state, Peter Brookes, stated the exemption from the inheritance tax reservation of benefit rules could apply in:
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