Part 1 and IHT

[goeasy123]

If a husband and wife register a boat Part 1 and declare the kids shareholders does this mean they're received a gift for inheritance purpose.... and after 7 years their share is outside the IHT threshold?

 

[Black Sheep]

I am not a lawyer.

But I would think that the tax people wouldn't regard names on the Part 1 paperwork alone as evidence that a gift had actually taken place.

If you look at the .gov pages on IHT, they discuss signing your house away to your kids while continuing to live in it. Unless you pay rent to the kids, they regard that as a "gift with reservation" and it would be included in the estate for IHT. By analogy, I would expect them to want to see evidence that the kids were genuine part owners - so if they "owned" 50% of the boat, that they were either using it 50% of the time, or charging you for your use of it, and were contributing 50% of maintenance costs etc. Otherwise they might regard it as a gift with reservation - where you give something away but continue to benefit from it.

If you really do intend your children to be genuine part-owners of the boat in all senses, I suggest you talk to a probate lawyer for advice on how best to document things to the Revenue's satisfaction.

As I say, I'm not a lawyer, so my advice is barely worth the electrons unless others agree with me, and you can chase up my references and satisfy yourself whether it's worth employing a real lawyer.

 

[Tranona]

Agree with all that. The only thing I would add is that it is not necessary to have the title registered on Part 1 as it is the Bill of Sale that creates the title. The Register is just that.

The gift with reservation only becomes an issue if you die before the 7 years is up

 

[jordanbasset]

Under inheritance tax rules If you give something away but still benefit from it (a ‘gift with reservation’), it will count towards the value of your estate.
So this is very unlikely to work

 

[Tranona]

Under inheritance tax rules If you give something away but still benefit from it (a ‘gift with reservation’), it will count towards the value of your estate.
So this is very unlikely to work

But not if you survive 7 years from the date of the gift. The value of the gift that stays in your estate reduces as time goes by and is gone after 7 years. So yes, it would "work" provided it is properly documented in terms of value at the time of the gift and by formal evidence of the transfer of title - that is BoS plus Part 1 register if the boat is registered. The downside of course is that you cannot sell the boat without the agreement of all the new owners.

 

[dunedin]

But not if you survive 7 years from the date of the gift. The value of the gift that stays in your estate reduces as time goes by and is gone after 7 years. So yes, it would "work" provided it is properly documented in terms of value at the time of the gift and by formal evidence of the transfer of title - that is BoS plus Part 1 register if the boat is registered. The downside of course is that you cannot sell the boat without the agreement of all the new owners.

I am no expert, but not sure that the 7 year rule applies to “gifts with reservation”

 

[jordanbasset]

But not if you survive 7 years from the date of the gift. The value of the gift that stays in your estate reduces as time goes by and is gone after 7 years. So yes, it would "work" provided it is properly documented in terms of value at the time of the gift and by formal evidence of the transfer of title - that is BoS plus Part 1 register if the boat is registered. The downside of course is that you cannot sell the boat without the agreement of all the new owners.

Don't believe it would even if you survived 7 years if you were still getting a benefit from it in those 7 years
Work out Inheritance Tax due on gifts
If the person who died gave a gift and used it in the 7 years before they died, it is seen as a ‘gift with reservation of benefit’. It is not an outright gift and is not exempt.

As an example, someone could transfer ownership of their house to a relative and continue to live in it without paying rent at the going rate.

If they continued to use the gift in the 7 years before they died, it counts as part of their estate. It does not matter when they gave it. It is taxed at the market value at the time of their death as if they still owned it.

 

[Graham376]

Agree with all that. The only thing I would add is that it is not necessary to have the title registered on Part 1 as it is the Bill of Sale that creates the title. The Register is just that.

The gift with reservation only becomes an issue if you die before the 7 years is up

I would think that selling shares to kids (or anyone else) for a small sum could avoid problems if OP snuffs it before 7 years is up.

 

[jordanbasset]

I would think that selling shares to kids (or anyone else) for a small sum could avoid problems if OP snuffs it before 7 years is up.

I suspect if you sold an asset we'll below market price the tax people would be interested, especially if you still had full use of that asset

 

[Tranona]

I suspect if you sold an asset we'll below market price the tax people would be interested, especially if you still had full use of that asset

Exactly

Don't believe it would even if you survived 7 years if you were still getting a benefit from it in those 7 years
Work out Inheritance Tax due on gifts
If the person who died gave a gift and used it in the 7 years before they died, it is seen as a ‘gift with reservation of benefit’. It is not an outright gift and is not exempt.

As an example, someone could transfer ownership of their house to a relative and continue to live in it without paying rent at the going rate.

If they continued to use the gift in the 7 years before they died, it counts as part of their estate. It does not matter when they gave it. It is taxed at the market value at the time of their death as if they still owned it.

You are right of course. Bit of brain fade!

 

[billskip]

Is it possible to put it in trust?
If you are the trustee you have to ...err..look after it.

 

[Tranona]

Bit of bed time reading Trusts and Inheritance Tax

 

[ean_p]

I seem to remember that vessel ownership differs significantly from ownership of other goods and if two ( or more) owners appear on the part one cert then on the death of one the whole of their share is given completely to the othe share holders......that is to say it can't be bequeathed etc......if or how this impacts on IHT who knows.......nor do you have to record what the 'consideration ' was which gave rise to the shares changing hands........

 

[Tranona]

I seem to remember that vessel ownership differs significantly from ownership of other goods and if two ( or more) owners appear on the part one cert then on the death of one the whole of their share is given completely to the othe share holders......that is to say it can't be bequeathed etc......if or how this impacts on IHT who knows.......nor do you have to record what the 'consideration ' was which gave rise to the shares changing hands........

Don't think that is correct. You can own shares in a yacht either in common or individually just like houses. IHT is assessed on the asset value at the time of death independent of who receives the assets under the terms of the will (with exceptions such as charities)

 

[goeasy123]

Don't think that is correct. You can own shares in a yacht either in common or individually just like houses. IHT is assessed on the asset value at the time of death independent of who receives the assets under the terms of the will (with exceptions such as charities)

Surely yachts and houses are treated differently? You can gift part or all of a house, but if you live in it you are considered to be benefiting from the whole asset until your death. If you gift part or all of a yacht and sail it until your death you are considered to be using only the part you remain the owner off.

My understanding is that unlike a house a yacht is not considered a lived in property. It is a chattel with undefined terms of use. It can therefore be a shared asset, like a painting, for which there is no definition for tax purpose of usage. If a parent gifts, say a 50% share in a yacht to their offspring and survives 7 years, then after 7 years that 50% is considered to be outside the parents estate for IHT purposes.

Also, unlike a house there is a issue with a yacht being considered a 'wasting asset' under section 131 and 132 of the IHT Act 1984.

 

[Tranona]

I was responding specifically to the suggestion that ownership of a boat by more than one person is ownership in common where on the death of one owner their share passes to the other owners which may or may not be the case as shares can be owned individually. The issue about IHT is that the share of the asset is assessed as its value at the time of death. It is irrelevant that it is considered a wasting asset as inevitably the value at that point is likely to be different from its cost. It will have either depreciated or appreciated just like any other "asset".

I think you would need to speak to an IHT specialist to get an opinion on how HMRC would treat a part owned asset such as a boat where you had gifted part of it rather than sold it. I don't know whether it would be deemed a gift with reservation if you continued to have use of it, My reading of the relevant section in the link in post#7 on pre owned assets where a gift is made (such as you are proposing) is that you can elect to pay income tax on the benefit (your usage of the gifted chattel - boats are specifically mentioned) or IHT. There is a further link to the HMRC manual on the subject, but I have not delved into that because I am not intending to do anything like gifting pre owned assets. However you may wish to go there.

 

[Seven Spades]

Hang on if you own a property and give it away and continue to live in it then, they say it is a gift with reservation because you have not really parted with it. My understanding is that with a house if you pay a full market rent then it is not seen as a gift with reservation. But with a boat if you are not a live aboard then I would take a different view. You have simply become joint owners and as long as you both share mooring, maintenance and insurance fees then I don't think that the same argument applies. If however you continue to pay all the costs of ownership then I think that the view would be that it wasn't really a gift. In short I thknk you can achive what you want but there are traps. You need a good accountant, one that will read the rules and not phone the taxman to get the taxman's view. A good account will form his own view and wil be prepared to go to the commissioners if the taxmnan takes a different view.

 

[Hooligan]

Any asset you own forms part of your estate. So if you own a boat and then gift it to your kids it is the same as a house. HMrC generally looks at intent. So let’s say you have 3 kids and you gift 75pc ie 25 pc each to them. As a 25 pc owner you would be ok to use the boat 25 pc of the time. However each child would need to pay their share of the costs etc demonstrating that this is truly a gift. HMRC may not dig too deeply but the risk is that if you continue to pay all the expenses they may well rule that you effectively owned the boat and were trying to avoid IHT on 75 pc of the asset. If you gifted the whole boat then you would need to pay your children for your usage, they would need to pay the costs and they would also need to pay tax on that income - provided of course they are taxpayers.