Taken From: http://www.disputeawill.co.uk/

← Back

Keen to Cut Inheritance Tax Liabilities? Contact Us Today

Giving away assets to your loved ones with warm hands, when you are still fit and healthy, is a readily available means of reducing Inheritance Tax (IHT) liabilities. However, as a guideline Court of Appeal decision illustrated, such gifts must be made without reservation in order to be tax effective.

House, The case concerned a woman who owned a long lease on a valuable London home. Over a decade prior to her death, she conferred upon her three sons, on favourable terms, a reversionary long sublease in respect of the property. The executors of her estate argued that the gift was effective to reduce IHT payable on her death.

HM Revenue and Customs accepted that the grant of the sublease was a gift that potentially qualified for IHT relief, having been made more than seven years before the woman’s death. It was also conceded that possession and enjoyment of the sublease was bona fide assumed by the sons on the date it was granted. However, IHT relief was refused on the basis that the gift was subject to a reservation.

It was submitted by HMRC’s lawyers that the sublease was not enjoyed by the sons to the entire, or virtually the entire, exclusion of their mother from any benefit by contract or otherwise. That was on the basis that, by the sublease, the sons had taken on the burden of various repair, maintenance and other covenants that would otherwise have fallen on their mother under her head lease. The executors’ appeal against HMRC’s decision was later rejected by the First-tier and Upper Tribunals.

In dismissing a challenge to the latter ruling brought by the eldest son, the Court noted that the sublease conferred on the woman the benefit of covenants given by her sons, including the obligation to observe and perform the provisions of the head lease throughout the term of the sublease. That benefit was of more than minimal value and, crucially, had no prior existence before the grant of the sublease. The gift thus involved the reservation by the woman of a contractual benefit.



 
Contact us for more information

← Back