Q&As

If a husband and wife jointly gave the whole beneficial interest in a property jointly-owned by them to their child, but they continue to live in the property until each of them dies, there would be a reservation of benefit by each of them, due to section 102 of the Inheritance Tax Act 1984–would the spouse exemption apply on the first death? How should the reservation of benefit be reported on the first death? How should the reservation of benefit by the surviving spouse be reported on the second death?

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Published on LexisPSL on 14/10/2020

The following Private Client Q&A provides comprehensive and up to date legal information covering:

  • If a husband and wife jointly gave the whole beneficial interest in a property jointly-owned by them to their child, but they continue to live in the property until each of them dies, there would be a reservation of benefit by each of them, due to section 102 of the Inheritance Tax Act 1984–would the spouse exemption apply on the first death? How should the reservation of benefit be reported on the first death? How should the reservation of benefit by the surviving spouse be reported on the second death?
  • On the death of the first spouse
  • On the death of the surviving spouse

If a husband and wife jointly gave the whole beneficial interest in a property jointly-owned by them to their child, but they continue to live in the property until each of them dies, there would be a reservation of benefit by each of them, due to section 102 of the Inheritance Tax Act 1984–would the spouse exemption apply on the first death? How should the reservation of benefit be reported on the first death? How should the reservation of benefit by the surviving spouse be reported on the second death?

On the death of the first spouse

Firstly, where a person has made a lifetime gift of an asset and has continued to benefit from the asset, such that section 102 of the Inheritance Tax Act 1984 (IHTA 1984) would apply, the use of the shorter return of estate information (Form IHT205) is not permitted. In that case, the fuller Form IHT400 must be used instead.

In the situation described in the question, the value of the beneficial interest formerly held by the deceased spouse will be treated for inheritance tax as being comprised in that spouse’s estate immediately before the death. That share of the beneficial interest has been owned by the recipient of the gift (the child) since the date of that gift. The spouse exemption from inheritance tax, in IHTA 1984, s 18(1), would

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