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21 February 2001
The Family Home: Tax Efficient Lifetime Giving – I
In the first of a series of two articles, Matthew Hutton explores some possible options for inheritance tax efficient lifetime gifts of the family home.
In the first of a series of two articles, Matthew Hutton explores some possible options for inheritance tax efficient lifetime gifts of the family home.
The Family Home: Tax Efficient Lifetime Giving – I
In the first of a series of two articles, Matthew Hutton explores some possible options for inheritance tax efficient lifetime gifts of the family home.
A marginal rate of inheritance tax at 40 per cent, though relatively low in the historic context of death duties, makes substantial inroads into the value of the family home. Although the effect of recent rapid increase in house prices in most parts of the country is to leave the family with a greater value net of tax, the temptation is always to have regard to the amount of tax payable value, even in a case where the house is to be sold in the next generation.
Where, on the other hand, the hope is that one or more of the children will own or occupy the home, the fact that its value typically represents a rather greater part of the post-tax estate means that taxpayers may want to consider whether that value can be preserved for one of the children, even if the net estate is not necessarily shared equally between them.
In Taxation, 30 November 2000 at pages 246 to 248, Ralph Ray recommended routes whereby, on the first death of a married couple, gifts of the family home might be structured in order to make full use of the nil rate band of the first to die while preserving security of tenure for the survivor. That is a rather less contentious issue, the aim being not to 'waste' the nil rate band on the first death worth £93,600 (40 per cent of £234,000).
Setting the scene
The conventional wisdom on lifetime giving must be 'don't', for the following reasons (among others):
'An Englishman's home is his castle' and it may well feel 'wrong' for the parents to be living in a house wholly or partly owned by the children.
Allied with that, there may be the risk of things not turning out as anticipated and the planning in some way vitiating the parents' continuing occupation of the house.
If lifetime inheritance tax planning is to be undertaken at all, it should be with assets other than the family home, which should be inviolate.
Having said all that, it is true that, while the potentially exempt transfer régime has opened the floodgates on lifetime giving over the last fifteen years, parents will tend to want to retain income-producing assets, while giving away assets which produce little or no income and which have the prospect of significant capital appreciation. The family home is, of course, a classic example of the latter category.
Quite apart from the security of tenure point, the main tax hurdle is presented by the reservation of benefit provisions in section 102 of, and Schedule 20 to, the Finance Act 1986. Broadly speaking, a gift made on or after 18 March 1986 will be treated as continuing to form part of the donor's estate where either (a) possession and enjoyment is not at or before the beginning of the 'relevant period' bona fide assumed by the donee or (b) throughout the 'relevant period' the property is not enjoyed to the entire exclusion or virtually the entire exclusion of the donor and of any benefit to him by contract or otherwise (section 102(1)).
The 'relevant period' is that beginning with the later of the date of the gift and a date beginning seven years before the donor's death (or the date of the gift where death follows within seven years). If the benefit ceases during the 'relevant period', the donor is treated by section 102(4) as making a potentially exempt transfer at that time. Otherwise, the value of the home at the date of death will be clawed back into the death estate.
Of course, for purposes of both capital gains tax and the general law, an effective gift will have been made. The 'worst of all worlds' therefore is the situation where a gift is made which is caught by the reservation of benefit rules and there has been significant appreciation in value between the date of gift and the date of death: no inheritance tax benefit will have been gained, but the donee owns an asset with a relatively low base cost as against market value and gains no protection from main residence relief, given that he has been living elsewhere. The possible impact of capital gains tax, and in one particular case stamp duty, should always be borne in mind.
Stamp duty
If the parent donors are prepared to move out of the main family home, for example because it is getting too big and expensive for them to run and/or one of the children needs a large family home, that is fine. Once the donors have survived the seven-year risk period, the exemption will become absolute for inheritance tax purposes. Any gain will be 'washed' by main residence relief under section 223(1), Taxation of Chargeable Gains Act 1992 and the benefit of main residence relief will attach to the donee's continuing occupation of the house. The only point to watch is a stamp duty one.
If the house is given free of mortgage, the gift can be certified Category L under the Stamp Duty (Exempt Instruments) Regulations 1987 SI 1987 No 516. If, however, the house is subject to a charge, the liability for which is assumed by the donee, there will for stamp duty (and indeed inheritance tax) purposes be a sale of the property at an undervalue, the consideration being the amount of the debt assumed by the donee (section 57, Stamp Act 1891). If, improbably, the donor remains solely liable for repayments of capital and payments of interest, albeit the liability is secured on the house, there will be no liability for stamp duty, and the Category L certificate can safely be given, though of course the property owned by the donee would be at risk if the donor were to default on the loan. That structure is more feasible where the subject matter of the gift is other than a family home and where a gift is being made in divided shares.
Generally, see Inland Revenue Statement of Practice SP6/90 for a very helpful analysis of the situation. It is important to think through in advance the stamp duty implications of any situation where a gift is made subject to a liability and, in the writer's view, to avoid highly artificial mechanisms in what might well prove to be a vain attempt to avoid section 57.
Reservation of benefit
Clearly the reservation of benefit provisions will apply to the case where there is a gift of the house and the donor simply continues to live there as before. Supposing he does not, however, and the donee moves in (to satisfy the first limb of section 102(1), how often can the donor safely return to the house without that triggering a reservation of benefit? A helpful article was published in the Inland Revenue's Tax Bulletin for November 1993 answering this question.
The Revenue says that the exception covers cases in which the benefit to the donor is insignificant in relation to the property given away. It does not operate the legislation unreasonably to prevent the donor from having limited access to property given away and a measure of flexibility is allowed in applying the test. Examples are given. The main 'evil' seems to be overnight stays.
Interestingly, there will be no reservation of benefit with a gift of a house which becomes the residence of the donee but where the donor subsequently stays (in the absence of the donee) for not more than two weeks of each year or (with the donee) for less than one month each year, which the writer considers fairly generous. The example which is curious is a gift together with a library of books. If the donor visits the library less than five times in any year to consult or borrow a book, there is no reservation; the fifth occasion, however, will trigger the rules!
The full consideration let-out
A very helpful exemption from the reservation of benefit rules in the case of a gift of land or of chattels is provided by paragraph 6(1)(a) of Schedule 20 to the Finance Act 1986. Following such a gift, any enjoyment thereafter by the donor is disregarded to the extent that it is for full consideration in money or money's worth. This means that on such a gift any occupation by the donor thereafter will be disregarded if, for example, it is pursuant to a lease in his favour which is granted on arm's length terms, i.e. he pays, whether in the form of income or capital, consideration for continuing enjoyment such as would be payable by an unconnected third party. In such a case, following expiry of the seven-year risk period, the exemption would become absolute.
The important point to watch with any gift is that no benefit is enjoyed by the donor at any time within the 'relevant period', even if throughout the seven years or more following the gift no benefit was enjoyed. To take an extreme example, a gift might have been made on 18 March 1986, with no benefit enjoyed for less than full consideration until the end of 2000. A benefit is then enjoyed throughout the month of January 2001 and the donor died on 31 January 2001. The market value of the asset given away will be clawed back into the death estate.
Under the full consideration route, a gift of the house might be followed by a lease back to the donor in one of two forms:
The donee (who for reasons of safety might be trustees for either the children or grandchildren) would grant a lease back at a full rack rent. This might be for a three-year period with regular rent reviews thereafter. In answer to the question as to what constitutes arm's length terms, the Inland Revenue wrote a letter to the Law Society on 18 May 1987 published in the Law Society Gazette of 1 June 1988 on page 50, stating that there must be a bargain negotiated at arm's length with the parties being independently advised, with terms following normal commercial criteria in force at the time. Two firms of surveyors and therefore solicitors should be instructed, notwithstanding the additional cost.
Of course, it is not absolutely essential to have such contemporaneous evidence, as the point can always be argued after the donor's death. However, it is preferable, notwithstanding the additional professional costs at the time, to have such evidence which should be accepted by the Revenue as satisfying the test of paragraph 6(1)(a) of Schedule 20 to the Finance Act 1986.
Additionally, helpfully, the Revenue recognises that there is no single value at which consideration can be fixed as 'full'. Rather, it accepts that there is a range of values reflecting normal valuation tolerances and that any amount in the range can be taken as satisfying the test in paragraph 6(1)(a). If, therefore, the range of tolerances for a particular property is an annual rent of £10,000 to £12,000, payment of not less than £10,000 should be sufficient.
The rent should of course be paid and returned by the donee as the income of a Schedule A business. If the donee is a trust for the donor's minor unmarried children, the income will be assessed on the donor under section 660B, Taxes Act 1988.
The donee could grant to the donor a lease for life for full consideration which would prevent there being a deemed settlement under section 43(3), Inheritance Tax Act 1984. Again, to achieve market value, based on the actual life expectancy of the donor lessee, there would be commercial negotiation of the capital sum. Assuming, however, that this is sufficient, once paid there would be security of tenure for the donor without any risk of the reservation of benefit rules such as might apply in the former case, e.g. by failure to pay a full market rent within the last year of the donor's life. Further, assuming that the donor can fund the necessary capital, it would leave the estate under a commercial bargain and would not itself be a transfer of value, thus inheritance tax efficient.
The full consideration lease for life would certainly be treated as a lease for less than fifty years (by reference to the age and life expectancy of the donor – see section 38(1)(a), Taxes Act 1988), triggering an income tax charge under section 34. However, this charge could be mitigated by having a gift of the house to trustees who would grant the lease and receive the premium. The premium would be received as trust capital and would therefore suffer only an income tax charge of 22 per cent.
In either case, it is important to minimise any residual value in the donor's estate, i.e. to ensure that there are no rights of occupation under Part I of the Landlord and Tenant Act 1954, or rights of enfranchisement under the Leasehold Reform Act 1967 as amended or the Leasehold Reform, Housing and Urban Development Act 1993. The lease should therefore be taken outside the scope of the enfranchisement provisions.
As an aside, the full consideration let-out can usefully also be applied to gifts of chattels which are given away but retained in the family home subject to an arm's length licence in favour of the donor, thus allowing continuing enjoyment on payment of usually a modest annual sum (though this is another subject!).
For capital gains tax purposes, the gift of the house will trigger a gain on the donor protected by section 223(1), Taxation of Chargeable Gains Act 1992. Any future appreciation in value may attract capital gains tax on the (non-occupying) donee.
Change in the donor's circumstances
Paragraph 6(1)(c) of Schedule 20 to the Finance Act 1986 provides a further let-out from reservation of benefit; occupation by the donor of the house is disregarded if all the following conditions are satisfied:
The occupation results from a change in the donor's circumstances since the time of the gift, provided that it was unforeseen at that date and was not brought about by him to enable him to benefit from this rule.
It occurs when the donor has become unable to maintain himself through old age, infirmity or otherwise.
It represents reasonable provision by the donee for the donor's care and maintenance.
The donee is a relative of the donor or his spouse.
This let-out may be of limited use for planning purposes, though it could provide a safety net if a prospective donor is worried about what might happen if later in life he becomes unwell. The conditions are fairly restrictive and would not, for example, cover a case where the donor's wife had died and, though perfectly able to maintain himself, he decides to sell his home and for companionship goes to live with his unmarried daughter in the house which he had given to her after March 1986.
Co-ownership
One or both parents might give to one or more children a share in the family house. Provided the children live with them in the home and pay no more than their share of running expenses as is fairly attributable in their share in the house, there need not be a reservation of benefit. Prior to 9 March 1999 the authority for this analysis was the statement in the House of Commons by Peter Brooke on 10 June 1986 (Hansard, Standing Committee G, 10 June 1986, col 425). As from 9 March 1999 the relief has become statutory under section 102B(4), Finance Act 1986. This is helpful in two respects. The 1986 statement applied only to shares in the main family home and therefore now gifts of shares in holiday homes and indeed of interests in land in general (e.g. within a family farming partnership) are covered by the statutory exemption.
In either case, protection against a reservation of benefit is obtained only for so long as each donee remains in occupation (whatever that may mean) paying his share of expenses. While the cautious might have chosen to limit the share to the number of co-owners, the 1987 Inland Revenue letter did contemplate unequal shares, which should therefore be possible. Careful contemporaneous evidence of payment of expenses is essential. There could be a danger if one of the co-owners wanted to force a sale. Perhaps there could be an option to acquire the interest at market value by way of first refusal.
The scheme can be capital gains tax efficient (though less adventurous from an inheritance tax point of view) in that each co-owner may (subject to his own circumstances) qualify for main residence relief. Further, on a donor's death, whether within or after expiry of the seven-year period, the value of his/her share will be subject to a discount to reflect the joint ownership. 10 per cent is traditionally accepted by the Capital Taxes Office, the Lands Tribunal in the 1982 case Wight and Another 264 EG 935 allowed 15 per cent, and there could be grounds for arguing more.
The second part of this article will consider some non-statutory possibilities for making lifetime gifts of, or a share in, the family home.
Matthew Hutton is a chartered tax adviser and may be contacted on 01508 528388. He is the author of Tolley's Tax Planning for Private Residences (Third Edition) which may be obtained from Butterworths Tolley (tel: 020 8662 2000) at £49.95.
In the first of a series of two articles, Matthew Hutton explores some possible options for inheritance tax efficient lifetime gifts of the family home.
A marginal rate of inheritance tax at 40 per cent, though relatively low in the historic context of death duties, makes substantial inroads into the value of the family home. Although the effect of recent rapid increase in house prices in most parts of the country is to leave the family with a greater value net of tax, the temptation is always to have regard to the amount of tax payable value, even in a case where the house is to be sold in the next generation.
Where, on the other hand, the hope is that one or more of the children will own or occupy the home, the fact that its value typically represents a rather greater part of the post-tax estate means that taxpayers may want to consider whether that value can be preserved for one of the children, even if the net estate is not necessarily shared equally between them.
In Taxation, 30 November 2000 at pages 246 to 248, Ralph Ray recommended routes whereby, on the first death of a married couple, gifts of the family home might be structured in order to make full use of the nil rate band of the first to die while preserving security of tenure for the survivor. That is a rather less contentious issue, the aim being not to 'waste' the nil rate band on the first death worth £93,600 (40 per cent of £234,000).
Setting the scene
The conventional wisdom on lifetime giving must be 'don't', for the following reasons (among others):
'An Englishman's home is his castle' and it may well feel 'wrong' for the parents to be living in a house wholly or partly owned by the children.
Allied with that, there may be the risk of things not turning out as anticipated and the planning in some way vitiating the parents' continuing occupation of the house.
If lifetime inheritance tax planning is to be undertaken at all, it should be with assets other than the family home, which should be inviolate.
Having said all that, it is true that, while the potentially exempt transfer régime has opened the floodgates on lifetime giving over the last fifteen years, parents will tend to want to retain income-producing assets, while giving away assets which produce little or no income and which have the prospect of significant capital appreciation. The family home is, of course, a classic example of the latter category.
Quite apart from the security of tenure point, the main tax hurdle is presented by the reservation of benefit provisions in section 102 of, and Schedule 20 to, the Finance Act 1986. Broadly speaking, a gift made on or after 18 March 1986 will be treated as continuing to form part of the donor's estate where either (a) possession and enjoyment is not at or before the beginning of the 'relevant period' bona fide assumed by the donee or (b) throughout the 'relevant period' the property is not enjoyed to the entire exclusion or virtually the entire exclusion of the donor and of any benefit to him by contract or otherwise (section 102(1)).
The 'relevant period' is that beginning with the later of the date of the gift and a date beginning seven years before the donor's death (or the date of the gift where death follows within seven years). If the benefit ceases during the 'relevant period', the donor is treated by section 102(4) as making a potentially exempt transfer at that time. Otherwise, the value of the home at the date of death will be clawed back into the death estate.
Of course, for purposes of both capital gains tax and the general law, an effective gift will have been made. The 'worst of all worlds' therefore is the situation where a gift is made which is caught by the reservation of benefit rules and there has been significant appreciation in value between the date of gift and the date of death: no inheritance tax benefit will have been gained, but the donee owns an asset with a relatively low base cost as against market value and gains no protection from main residence relief, given that he has been living elsewhere. The possible impact of capital gains tax, and in one particular case stamp duty, should always be borne in mind.
Stamp duty
If the parent donors are prepared to move out of the main family home, for example because it is getting too big and expensive for them to run and/or one of the children needs a large family home, that is fine. Once the donors have survived the seven-year risk period, the exemption will become absolute for inheritance tax purposes. Any gain will be 'washed' by main residence relief under section 223(1), Taxation of Chargeable Gains Act 1992 and the benefit of main residence relief will attach to the donee's continuing occupation of the house. The only point to watch is a stamp duty one.
If the house is given free of mortgage, the gift can be certified Category L under the Stamp Duty (Exempt Instruments) Regulations 1987 SI 1987 No 516. If, however, the house is subject to a charge, the liability for which is assumed by the donee, there will for stamp duty (and indeed inheritance tax) purposes be a sale of the property at an undervalue, the consideration being the amount of the debt assumed by the donee (section 57, Stamp Act 1891). If, improbably, the donor remains solely liable for repayments of capital and payments of interest, albeit the liability is secured on the house, there will be no liability for stamp duty, and the Category L certificate can safely be given, though of course the property owned by the donee would be at risk if the donor were to default on the loan. That structure is more feasible where the subject matter of the gift is other than a family home and where a gift is being made in divided shares.
Generally, see Inland Revenue Statement of Practice SP6/90 for a very helpful analysis of the situation. It is important to think through in advance the stamp duty implications of any situation where a gift is made subject to a liability and, in the writer's view, to avoid highly artificial mechanisms in what might well prove to be a vain attempt to avoid section 57.
Reservation of benefit
Clearly the reservation of benefit provisions will apply to the case where there is a gift of the house and the donor simply continues to live there as before. Supposing he does not, however, and the donee moves in (to satisfy the first limb of section 102(1), how often can the donor safely return to the house without that triggering a reservation of benefit? A helpful article was published in the Inland Revenue's Tax Bulletin for November 1993 answering this question.
The Revenue says that the exception covers cases in which the benefit to the donor is insignificant in relation to the property given away. It does not operate the legislation unreasonably to prevent the donor from having limited access to property given away and a measure of flexibility is allowed in applying the test. Examples are given. The main 'evil' seems to be overnight stays.
Interestingly, there will be no reservation of benefit with a gift of a house which becomes the residence of the donee but where the donor subsequently stays (in the absence of the donee) for not more than two weeks of each year or (with the donee) for less than one month each year, which the writer considers fairly generous. The example which is curious is a gift together with a library of books. If the donor visits the library less than five times in any year to consult or borrow a book, there is no reservation; the fifth occasion, however, will trigger the rules!
The full consideration let-out
A very helpful exemption from the reservation of benefit rules in the case of a gift of land or of chattels is provided by paragraph 6(1)(a) of Schedule 20 to the Finance Act 1986. Following such a gift, any enjoyment thereafter by the donor is disregarded to the extent that it is for full consideration in money or money's worth. This means that on such a gift any occupation by the donor thereafter will be disregarded if, for example, it is pursuant to a lease in his favour which is granted on arm's length terms, i.e. he pays, whether in the form of income or capital, consideration for continuing enjoyment such as would be payable by an unconnected third party. In such a case, following expiry of the seven-year risk period, the exemption would become absolute.
The important point to watch with any gift is that no benefit is enjoyed by the donor at any time within the 'relevant period', even if throughout the seven years or more following the gift no benefit was enjoyed. To take an extreme example, a gift might have been made on 18 March 1986, with no benefit enjoyed for less than full consideration until the end of 2000. A benefit is then enjoyed throughout the month of January 2001 and the donor died on 31 January 2001. The market value of the asset given away will be clawed back into the death estate.
Under the full consideration route, a gift of the house might be followed by a lease back to the donor in one of two forms:
The donee (who for reasons of safety might be trustees for either the children or grandchildren) would grant a lease back at a full rack rent. This might be for a three-year period with regular rent reviews thereafter. In answer to the question as to what constitutes arm's length terms, the Inland Revenue wrote a letter to the Law Society on 18 May 1987 published in the Law Society Gazette of 1 June 1988 on page 50, stating that there must be a bargain negotiated at arm's length with the parties being independently advised, with terms following normal commercial criteria in force at the time. Two firms of surveyors and therefore solicitors should be instructed, notwithstanding the additional cost.
Of course, it is not absolutely essential to have such contemporaneous evidence, as the point can always be argued after the donor's death. However, it is preferable, notwithstanding the additional professional costs at the time, to have such evidence which should be accepted by the Revenue as satisfying the test of paragraph 6(1)(a) of Schedule 20 to the Finance Act 1986.
Additionally, helpfully, the Revenue recognises that there is no single value at which consideration can be fixed as 'full'. Rather, it accepts that there is a range of values reflecting normal valuation tolerances and that any amount in the range can be taken as satisfying the test in paragraph 6(1)(a). If, therefore, the range of tolerances for a particular property is an annual rent of £10,000 to £12,000, payment of not less than £10,000 should be sufficient.
The rent should of course be paid and returned by the donee as the income of a Schedule A business. If the donee is a trust for the donor's minor unmarried children, the income will be assessed on the donor under section 660B, Taxes Act 1988.
The donee could grant to the donor a lease for life for full consideration which would prevent there being a deemed settlement under section 43(3), Inheritance Tax Act 1984. Again, to achieve market value, based on the actual life expectancy of the donor lessee, there would be commercial negotiation of the capital sum. Assuming, however, that this is sufficient, once paid there would be security of tenure for the donor without any risk of the reservation of benefit rules such as might apply in the former case, e.g. by failure to pay a full market rent within the last year of the donor's life. Further, assuming that the donor can fund the necessary capital, it would leave the estate under a commercial bargain and would not itself be a transfer of value, thus inheritance tax efficient.
The full consideration lease for life would certainly be treated as a lease for less than fifty years (by reference to the age and life expectancy of the donor – see section 38(1)(a), Taxes Act 1988), triggering an income tax charge under section 34. However, this charge could be mitigated by having a gift of the house to trustees who would grant the lease and receive the premium. The premium would be received as trust capital and would therefore suffer only an income tax charge of 22 per cent.
In either case, it is important to minimise any residual value in the donor's estate, i.e. to ensure that there are no rights of occupation under Part I of the Landlord and Tenant Act 1954, or rights of enfranchisement under the Leasehold Reform Act 1967 as amended or the Leasehold Reform, Housing and Urban Development Act 1993. The lease should therefore be taken outside the scope of the enfranchisement provisions.
As an aside, the full consideration let-out can usefully also be applied to gifts of chattels which are given away but retained in the family home subject to an arm's length licence in favour of the donor, thus allowing continuing enjoyment on payment of usually a modest annual sum (though this is another subject!).
For capital gains tax purposes, the gift of the house will trigger a gain on the donor protected by section 223(1), Taxation of Chargeable Gains Act 1992. Any future appreciation in value may attract capital gains tax on the (non-occupying) donee.
Change in the donor's circumstances
Paragraph 6(1)(c) of Schedule 20 to the Finance Act 1986 provides a further let-out from reservation of benefit; occupation by the donor of the house is disregarded if all the following conditions are satisfied:
The occupation results from a change in the donor's circumstances since the time of the gift, provided that it was unforeseen at that date and was not brought about by him to enable him to benefit from this rule.
It occurs when the donor has become unable to maintain himself through old age, infirmity or otherwise.
It represents reasonable provision by the donee for the donor's care and maintenance.
The donee is a relative of the donor or his spouse.
This let-out may be of limited use for planning purposes, though it could provide a safety net if a prospective donor is worried about what might happen if later in life he becomes unwell. The conditions are fairly restrictive and would not, for example, cover a case where the donor's wife had died and, though perfectly able to maintain himself, he decides to sell his home and for companionship goes to live with his unmarried daughter in the house which he had given to her after March 1986.
Co-ownership
One or both parents might give to one or more children a share in the family house. Provided the children live with them in the home and pay no more than their share of running expenses as is fairly attributable in their share in the house, there need not be a reservation of benefit. Prior to 9 March 1999 the authority for this analysis was the statement in the House of Commons by Peter Brooke on 10 June 1986 (Hansard, Standing Committee G, 10 June 1986, col 425). As from 9 March 1999 the relief has become statutory under section 102B(4), Finance Act 1986. This is helpful in two respects. The 1986 statement applied only to shares in the main family home and therefore now gifts of shares in holiday homes and indeed of interests in land in general (e.g. within a family farming partnership) are covered by the statutory exemption.
In either case, protection against a reservation of benefit is obtained only for so long as each donee remains in occupation (whatever that may mean) paying his share of expenses. While the cautious might have chosen to limit the share to the number of co-owners, the 1987 Inland Revenue letter did contemplate unequal shares, which should therefore be possible. Careful contemporaneous evidence of payment of expenses is essential. There could be a danger if one of the co-owners wanted to force a sale. Perhaps there could be an option to acquire the interest at market value by way of first refusal.
The scheme can be capital gains tax efficient (though less adventurous from an inheritance tax point of view) in that each co-owner may (subject to his own circumstances) qualify for main residence relief. Further, on a donor's death, whether within or after expiry of the seven-year period, the value of his/her share will be subject to a discount to reflect the joint ownership. 10 per cent is traditionally accepted by the Capital Taxes Office, the Lands Tribunal in the 1982 case Wight and Another 264 EG 935 allowed 15 per cent, and there could be grounds for arguing more.
The second part of this article will consider some non-statutory possibilities for making lifetime gifts of, or a share in, the family home.
Matthew Hutton is a chartered tax adviser and may be contacted on 01508 528388. He is the author of Tolley's Tax Planning for Private Residences (Third Edition) which may be obtained from Butterworths Tolley (tel: 020 8662 2000) at £49.95.
