Writing for Taxation magazine, BKL tax consultant Terry Jordan comments on an earlier article concerning gifts with reservation of benefit (GROB) and the valuation rules for potentially exempt transfers (PETs) of property.
Gifts with reservation (FA 1986, s 102B)
‘There was a passage in Meg Saksida’s article ‘Have your cake and eat it too’ (Taxation, 14 July 2022, page 14 [available online to subscribers here]) that puzzled me:
- ‘The gift of the dwelling from donor to donee in the lifetime of the donor is a potentially exempt transfer (PET). The valuation rules surrounding PETs allow the transfer to be made at a loss to the donor which would be a discounted amount, given a share of a property sold in joint ownership is worth less than an absolute share of the market value. HMRC’s district valuer will usually help with this.’
I have always advised that the result of the loss to the donor’s estate principle when there is a lifetime gift of a share in a property is that the value transferred is greater than the value of the share in isolation. So, if I give half of my house worth £500,000 in its entirety to my daughter, the PET is about £275,000 (£500,000 less retained half share discounted by 10%). The corollary is that the retained share is worth less than half which is usually a good thing.
I would also mention a point I picked up from the late Chris Whitehouse at a Society of Trust and Estate Practitioners conference: the donor and donee(s) must own as tenants in common and not as beneficial joint tenants.’
Meg Saksida replies:
‘Thank you so much for this feedback and I agree with both points.
I think I have phrased the sentence in a way that is confusing and I apologise for this. What I wished to convey was that the value given away would be discounted such that yes, the loss to donor principal would mean that there was a larger PET (as the estate would not reduce by exactly 50% but by more than 50%) but this comes across (I can see that now) as being the opposite.
Also, I completely agree that this will be possible only if the property is held as tenants in common. I always stress this when writing about spouses or civil partners gifting between them (ironically I have just finished an article on just this topic for another publication where this is stressed) but had not thought to impress this when discussing a s 102B transfer as I assume, not being spouses or civil partners, it would always be held as tenants in common. But this is of course not the case.’
This exchange was published in Issue 4852 of Taxation magazine and is also available on the Taxation website.
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