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It is considered that there is a reasonable technical argument that the donee could receive a share greater than that retained by the donor(s) on the basis that there is no longer reference to full consideration as the basis for provision, but it is understood that HMRC regards such planning as provocative. Several clients excluded themselves from benefiting from trust structures by 5 April this year for fear that, otherwise, death would occasion a charge to inheritance tax under the reservation of benefit provisions and the spouse exemption would not be available. 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. The legislation provides that where an individual ( IHTM14312) disposes of any property by way of gift on or after 18 March 1986 a reservation of benefit will arise under FA86/S102(2) where either The tax charge will be set at 24% — the tapered rate for a gift made 4-5 years before the person died — if they:
The downsizing rules apply where a person sells or gives away a home that’s included in their estate. Property held in certain trusts is included within a person’s estate for Inheritance Tax purposes and so the downsizing rules apply in these circumstances too. This is not a GWR. As the original transfer was spouse exempt, the GWR provisions do not apply even though the donor had exclusive use and enjoyment of the gifted half share following Wanda’s death. Debt might reduce the taxable value but the government has said that connected party loans will not be deductible. Qualifying business and agricultural assets that have been owned for at least two years may be entitled to IHT relief of up to 100%Do you have a reservation? This is not a greeting by the maître d’ at my local fast-food establishment but rather a consideration of the inheritance tax ‘gifts with reservation of benefit’ provisions. Jim dies leaving all his assets to his wife Sue. He has made no lifetime gifts. After Jim's death, Sue marries William. They make mirror wills leaving everything to each other. When you work out the lost RNRB, the percentage at step 3 will always be 0% and the result at step 4 will always be the same as the figure at step 2. So, you can miss out steps 3 and 4. Foreign property settled by a settlor with foreign domicile remains excluded property if the reservation continues up to the settlor's death, even though the domicile may have changed between those dates.'
Without the GWR provisions you could simply transfer property out of your estate, but continue to derive a benefit by remaining in occupation and the property would not be an asset of your estate at the date of your death.There is a further exemption in FA 1986, Sch 20 para 6(1)(b) if the donor occupies land that has been the subject matter of a gift because he suffers an unforeseen (at the time of the gift) change of circumstances and has become unable to maintain himself through old age, infirmity or otherwise and it represents reasonable provision for the donor by the donee, who must be related. Note that the donor does not necessarily need ever to leave the gifted property for the provision to apply.
If the value of the former home is the same or more than the maximum available RNRB at the time of the disposal, you treat the lost RNRB as 100% of the maximum RNRB available when the person died. 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:The property is subject to a reservation and is therefore deemed to be part of George’s estate on death. However, the property is situated outside the UK and the donor, who is treated as beneficially entitled to it, was domiciled outside the UK at his death. The property is therefore excluded property within IHTA84/S6 (1) and escapes the GWR charge.
Those arrangements were frustrated by the insertion of s 102ZA into FA 1986 with effect from 22 March 2006. A few years ago the Sunday Times reported that a peer had designated as his ‘main home’ a house he gave to his son six years earlier: Anything you leave in your will does not count as a lifetime gift but forms part of your estate. Your estate is all your money, property and possessions left when you die. Any Inheritance Tax due is calculated on the value of your estate as at the date of death. What is the 7-year rule for lifetime gifts?
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a copy of the grant of representation (Confirmation in Scotland) - or if no grant was taken out, a copy of the death certificate An Income Tax charge can apply if a person gives away assets during their lifetime and continues to benefit from them in some way. Instead of paying Income Tax on this benefit a person can elect to pay Inheritance Tax. A gift with reservation occurs where, for example, a parent gifts their home to their children and continues to live in the property. In those circumstances, the parents are said to have reserved a benefit in the gift and, as such, it will be treated as part of their estate on death, even if it was gifted to the children more than seven years prior to their death. What counts as a lifetime gift?
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