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Replies to Queries - A holiday home headache

17 February 2005
Issue: 3995 / Categories:

In 2000, my client created a discretionary settlement for the benefit of his children, grandchildren and his widow-to-be. Into the trust, he gifted his holiday home, which he and his wife and family continued to use on an ad hoc basis. He agreed with the trustees that he would pay all outgoings including heat and light, telephone, council tax, insurance, internal and external repairs and renewals of all contents.

In 2000, my client created a discretionary settlement for the benefit of his children, grandchildren and his widow-to-be. Into the trust, he gifted his holiday home, which he and his wife and family continued to use on an ad hoc basis. He agreed with the trustees that he would pay all outgoings including heat and light, telephone, council tax, insurance, internal and external repairs and renewals of all contents. Indeed, during the lifetime of the settlor, the trustees are assured that they will have all costs reimbursed by him (just as well, as the trustees do not have any capital money and do not let the property to generate income).

The settlor maintains that the value of his undertaking to the trustees easily covers the commercial value of his occasional use of the property. Does he have a gift with reservation of benefit or a pre-owned assets tax (POT) problem, or neither? If so, what ammunition does he need to counter a Revenue attack? If POT applies and he and his wife only use the property for, say, one month a year, does this represent one-twelfth of the annual assessable value? Is it significant that he and his wife are trustees?

Readers' thoughts on this topic would be most welcome.

(Query T16,556)       

Issue: 3995 / Categories:
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