Interesting IHT planning with classic cars, will it work?
Discussion
I had an interesting proposition in a client meeting this week. A switched on old widower with an estate in excess of nil rate band is looking for ways to minimise IHT liability - he is pretty sure he doesn't have more than ten years left in him, so is trying to be pro-active, which I applaud. He has already dealt with the house - changed ownership to tenants in common prior to death of spouse and her half was willed to children, who receive (taxable) rent from him, so really its just remaining assets to minimise.
A quick tot-up of those show the estate will exceed nil rate band... which is where the classic cars come in. He has a small collection of nice classics, circa £100k worth, which he feels would be useful to remove from the estate and he proposed thus - he remained the registered keeper (so on the V5), but gift the cars, transferring legal ownership to his beneficiaries (thereby creating a PET). Assuming he survives the 7 years, their value leaves the estate and everyone is happy.... BUT this felt to me like it could be classed as a gift with reservation. He argued it wasn't as the classics are all insured under a group policy and the beneficiaries are named drivers on such, already using the cars sporadically - so he doesn't have sole benefit. He remains registered keeper to handle the administration of the fleet (Insurance etc.). Whilst I won't be giving formal advice to him, as its outside my remit, I have to say it sounded like quite a good idea! What is the PH opinion? Legal and watertight? or likely to unravel come probate time & if so how could it be made to work?
A quick tot-up of those show the estate will exceed nil rate band... which is where the classic cars come in. He has a small collection of nice classics, circa £100k worth, which he feels would be useful to remove from the estate and he proposed thus - he remained the registered keeper (so on the V5), but gift the cars, transferring legal ownership to his beneficiaries (thereby creating a PET). Assuming he survives the 7 years, their value leaves the estate and everyone is happy.... BUT this felt to me like it could be classed as a gift with reservation. He argued it wasn't as the classics are all insured under a group policy and the beneficiaries are named drivers on such, already using the cars sporadically - so he doesn't have sole benefit. He remains registered keeper to handle the administration of the fleet (Insurance etc.). Whilst I won't be giving formal advice to him, as its outside my remit, I have to say it sounded like quite a good idea! What is the PH opinion? Legal and watertight? or likely to unravel come probate time & if so how could it be made to work?
Absolutely impossible to prove what is or is not part of an estate.....the V5 records the keeper not the owner.
Theoretically any supporting paperwork for a gift can be back dated although this sounds not to be needed here
Ideally the 'old' owner should charge the 'new' owner a rent to garage the car(s) and the latter should cover any maintenance there may be - then what would there be to challenge?
Theoretically any supporting paperwork for a gift can be back dated although this sounds not to be needed here
Ideally the 'old' owner should charge the 'new' owner a rent to garage the car(s) and the latter should cover any maintenance there may be - then what would there be to challenge?
It may not be contested, but then again, if the HMRC do get wind, I would suggest that they may try to demonstrate the 'reservation of benefit' bit as he clearly is still enjoying such items as if they were still his, especially if they are still on his property, even though a piece of paper say ownership of another.
How that would come out in Court if it got that far is anyone's guess, but HMRC have a history of trying...
How that would come out in Court if it got that far is anyone's guess, but HMRC have a history of trying...
larrylamb11 said:
That's the theory - the challenge would be whether it could be classed as gift with reservation as 'old' owner still has access to and ability to use said cars. Legal ownership transfer completed by deed of gift object, properly witnessed.
Certainly sounds like it to me - not least because that's basically exactly what it is...ging84 said:
is all this stress just to try and keep one less registered keeper on the v5?
No, it's so that he can keep using the cars, then when he kicks the bucket, his executors can say "Look - he gave it to Cousin Dave ten years ago, therefore it's not part of his estate for IHT porpoises"No, the number of keepers on the V5 is irrelevant. Its seeking to reduce an IHT liability by using the Potentially Exempt Transfer provisions to remove the classic cars (and thus their value) from the estate. The more I think about it though, the more I think it falls down on the gift with reservation rules, notably the entire exclusion of the donor. Even if (legal) ownership and registered keeper details were transferred to beneficiaries, it would be hard to argue that use by the donor was de minimis as the donor would remain on the insurance particulars as a named driver, effectively affording the opportunity to use the vehicles all year round (although in reality they wouldn't). There is no doubt that it could be established that the donees (the beneficiaries) have assumed proper possession and that they were enjoying the use of the cars (indeed they have been so doing for over two decades!), but it would be very hard to establish that this was at the exclusion of the donor....
I think it sounds like a good idea that wouldn't pass scrutiny. Does anyone have anything else to add, or a suggestion on how it could be made to work?
I think it sounds like a good idea that wouldn't pass scrutiny. Does anyone have anything else to add, or a suggestion on how it could be made to work?
pork911 said:
full gift, insured for anyone to drive, but he not named?
..and RK changed... and probably removed from the premises as far as where they are normally stored is concerned! Otherwise it looks way to fishy... 'Cake & Eat it' is not in the book that HMRC reads...
You should not give any reason for doubt in respect to R of I as this will the the bat that HMRC are so good at hitting you with.
TooMany2cvs said:
ging84 said:
is all this stress just to try and keep one less registered keeper on the v5?
No, it's so that he can keep using the cars, then when he kicks the bucket, his executors can say "Look - he gave it to Cousin Dave ten years ago, therefore it's not part of his estate for IHT porpoises"larrylamb11 said:
No, the number of keepers on the V5 is irrelevant. Its seeking to reduce an IHT liability by using the Potentially Exempt Transfer provisions to remove the classic cars (and thus their value) from the estate. The more I think about it though, the more I think it falls down on the gift with reservation rules, notably the entire exclusion of the donor. Even if (legal) ownership and registered keeper details were transferred to beneficiaries, it would be hard to argue that use by the donor was de minimis as the donor would remain on the insurance particulars as a named driver, effectively affording the opportunity to use the vehicles all year round (although in reality they wouldn't). There is no doubt that it could be established that the donees (the beneficiaries) have assumed proper possession and that they were enjoying the use of the cars (indeed they have been so doing for over two decades!), but it would be very hard to establish that this was at the exclusion of the donor....
I think it sounds like a good idea that wouldn't pass scrutiny. Does anyone have anything else to add, or a suggestion on how it could be made to work?
I see where you're coming from but why would it be any different from my lawn mower. If I make a gift of it to you does that mean that I'm not allowed to borrow it for seven years without HMRC poking their oar in? The only reason the donor will be on the recipient's car insurance is that the law requires it (unlike the lawn mower).I think it sounds like a good idea that wouldn't pass scrutiny. Does anyone have anything else to add, or a suggestion on how it could be made to work?
TooMany2cvs said:
ging84 said:
Yes i understand this, but you don't need to be the registered keeper to use the car, so why can't he just give it to Cousin Dave, and transfer the v5 with it.
Because he wants the "ownership" to be on paper only, for HMRC's purposes only...None of that matters - I just want to hear of ANY prior cases where HMRC have actually delved into this - I know of none
pork911 said:
full gift, insured for anyone to drive, but he not named?
Hmmm.. that would probably work...3Dee said:
..and RK changed... and probably removed from the premises as far as where they are normally stored is concerned!
Otherwise it looks way to fishy... 'Cake & Eat it' is not in the book that HMRC reads...
You should not give any reason for doubt in respect to R of I as this will the the bat that HMRC are so good at hitting you with.
Indeed, it would need to be watertight. To be honest, changing keeper and storage probably wouldn't be that big a deal...Otherwise it looks way to fishy... 'Cake & Eat it' is not in the book that HMRC reads...
You should not give any reason for doubt in respect to R of I as this will the the bat that HMRC are so good at hitting you with.
Willhire89 said:
Can any of you give me one example (which I guess would be a test case) where this has ever been pursued by HMRC??
I really can't see how they would know of the existence of this type of asset (unless told) far less be able to track and value it.
Existance is easy - the executors would be duty bound to declare all assets upon death, so would have to declare the vehicles in the estate if they were still owned by the deceased and of course their realistic value.... V5Cs in the deceased's name would be a bit of a clue.. I really can't see how they would know of the existence of this type of asset (unless told) far less be able to track and value it.
Red Devil said:
I see where you're coming from but why would it be any different from my lawn mower. If I make a gift of it to you does that mean that I'm not allowed to borrow it for seven years without HMRC poking their oar in? The only reason the donor will be on the recipient's car insurance is that the law requires it (unlike the lawn mower).
From my understanding, I think it does mean you aren't allowed to borrow it... if you do, you continue to have benefit of it and it is thus a gift with reservation... and liable to be added back into the estate upon death.Willhire89 said:
Maybe you like giving IHT to HMRC just because you can? - or maybe there's an element of the green eyed monster that the OP's client has cars which have a significant value?.....whatever I don't get the attitude.
None of that matters - I just want to hear of ANY prior cases where HMRC have actually delved into this - I know of none
I would also be interested to hear of any test cases or examples where HMRC have looked at this.None of that matters - I just want to hear of ANY prior cases where HMRC have actually delved into this - I know of none
From my point of view, IHT is the one tax you should never have to pay.... we all know death is a certainty and there are plenty of ways of planning for the eventuality and arranging affairs accordingly. My twinkly eyed septegenarian client is pretty sharp and seems to be pretty on the ball with his thinking and planning - I can see that he probaby could make his strategy work with a bit more attention to the fine detail and I certainly applaud him for his ingenuity. As I said, I am not formally advising or offering an opinion on this, I was just interested in his strategy and thought it worth seeing what the PH collective thought... you never know, it may prove useful for someone else, if only to stimulate thinking.
Edited by larrylamb11 on Saturday 23 August 00:00
If the V5 form is not title of ownership then that in itself should not be the sole reason for an executor to include that asset in the deceased's estate. However, despite the PET in place, if the deceased's name is still on the V5 form, it does give HMRC a stick to beat the Exor with.
If donor transferred reregistered the cars into the beneficiaries' names, is he then worried that he no longer owns them? In which case he is treating the V5 firm as title of ownership!
If donor reregd the cars but continued to use them as a named driver on a family policy, HMRC would have to carry out a forensic examination to prove any reservation with the PET.
Also, what happens with the V5 forms when the registered keeper dies? Does the DVLA require a grant of probate to reregister title of ownership into the beneficiary's name?
The example of this process that I heard of required the transfer of the V5 form into the beneficiary's name whilst donor continued to store and enjoy the cars while he was still alive. I understand it was straight forward for the Exors and the value of said cars was over £1 million at the time.
I would say that there is an opportunity with this process for a modest IHT saving which would not be of much interest to HMRC. but if one sold one's mansion, reinvested in a fleet of classics all earmarked for beneficiaries but still regd in donor's name, I would imagine HMRC would like to delve a little deeper into the paperwork.
JB
If donor transferred reregistered the cars into the beneficiaries' names, is he then worried that he no longer owns them? In which case he is treating the V5 firm as title of ownership!
If donor reregd the cars but continued to use them as a named driver on a family policy, HMRC would have to carry out a forensic examination to prove any reservation with the PET.
Also, what happens with the V5 forms when the registered keeper dies? Does the DVLA require a grant of probate to reregister title of ownership into the beneficiary's name?
The example of this process that I heard of required the transfer of the V5 form into the beneficiary's name whilst donor continued to store and enjoy the cars while he was still alive. I understand it was straight forward for the Exors and the value of said cars was over £1 million at the time.
I would say that there is an opportunity with this process for a modest IHT saving which would not be of much interest to HMRC. but if one sold one's mansion, reinvested in a fleet of classics all earmarked for beneficiaries but still regd in donor's name, I would imagine HMRC would like to delve a little deeper into the paperwork.
JB
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