Recent Case Highlights Perils of Inadequate Inheritance Tax Planning


Recent Case Highlights Perils of Inadequate Inheritance Tax Planning

The Royal Courts of Justice with blue sky and clouds.

A recent court case has shown the dangers of transferring property to relatives in a bid to mitigate inheritance tax after an 82-year-old grandmother was evicted from her flat by her daughter.

July’s judgment at the Central London County Court brings to an end a bitter legal battle between Norma Gibbons and her daughter Dawn about a £1.4million property in Earlsfield, south London.

The converted property was split into two flats, with Norma owning the building and living upstairs and her daughter Dawn owning the leasehold to the ground floor flat and living there.

In 2004, Norma transferred her three-bedroom flat, which was in her name, and the freehold of the entire building, which was in their joint names, into her daughter’s sole name as a gift to avoid inheritance tax.

However, the relationship between the two broke down following the birth of Dawn’s daughter in 2008, culminating in Dawn attempting to have Norma evicted from the premises in November 2022.

The case was heard at the County Court last year when Norma claimed she had been “tricked” into making the gift in 2004. However, this was rejected by the judge, who instead found that Norma had willingly transferred the £600,000 flat to her daughter to avoid inheritance tax and had done so without Dawn’s knowledge.

The case returned to court earlier this month (July 2023), when it was argued that Norma would never have transferred the flat to her daughter if she thought she could be evicted. Norma’s defence team claimed that Norma had always had an “expectation to live there for the rest of her life” and that it must have been part of any agreement to transfer it.

However, the judge rejected this argument, and said Norma could not claim that she had relied on an agreement that she could stay for life while also claiming she had been tricked into the transfer. The judge ordered Norma to leave the property.

The case highlights the perils of inadequate inheritance tax planning and demonstrates the importance of using a specialist solicitor when organising your affairs.

Inheritance tax is the tax levied on a deceased person’s estate and is paid by the person who inherits money, property or possessions. Currently in the UK, inheritance tax of 40% is charged on the part of an estate over the threshold of £325,000.

This levy prompts many people to attempt to “gift” property and other assets to family members so they do not have to face the charge upon their death.

Many parents assume they can gift their home to their children while continuing to live there. However, this is not the case. Children are under no obligation to allow their parents to continue living in the home, and gifting a property in this way offers no protection against any potential future fallout.

Benefitting from a gift in this way is also not allowed. Gifting a property to children and continuing to benefit from it by living there would see HM Revenue & Customs treat the property as part of your estate and take its value into account for inheritance tax purposes.

There are ways to offset inheritance tax payments by making gifts, but this area of law is complex. Specialist legal advice is vital when considering your estate planning, and an experienced private client solicitor will be able to advise that any arrangements are in your best interests.

You can read more about the case by clicking here.

Inheritance Tax Planning Solicitor Alton

The Private Client team at Bookers & Bolton are specialists in inheritance tax planning and can help develop an effective plan that safeguards your future.

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