CG65625 - Private residence relief: dependent relative: rent free: transfer from

It is common for dwelling-houses to be transferred between members of a family without any cash consideration being paid. A house may be passed to a younger generation, for example from parents to children, in order to mitigate the effect of Inheritance Tax on the parents. The parents will usually remain in occupation of the dwelling-house and, when that dwelling-house is eventually sold, the children may claim relief under s226 TCGA92 on the basis that their parents were their dependent relatives.

If the transfer of the dwelling housedwelling-house has been made on the basis of an explicit agreement that the transferor will continue to reside in it, it may be possible to show that relief is not due as the property has not been provided without any other consideration, see CG65630. But each case depends on its own facts and it cannot be assumed that an agreement existed.

Where there is clear evidence of an explicit agreement, the transfer of the dwelling-house from the dependent relative to the claimant is itself consideration received by the claimant for allowing the dependent relative to remain in occupation.

The word `consideration’ is being used in s226(1) TCGA92 in its legal sense as

`Anything regarded as recompense or equivalent for what one does or undertakes for another’s benefit, especially in the law of contract - the thing given or done by the promisee in exchange for the promise’.

It is necessary to demonstrate that the transfer of the dwelling-house was made in exchange for a contractual undertaking by the claimant to allow the dependent relative to remain in occupation. This is a question of fact which may need to be demonstrated to the satisfaction of the Tribunal. Consequently, in the absence of clear evidence that an agreement was entered into at the time of the transfer of the dwelling-house, and its terms, it will not be possible to demonstrate that relief is not due.

It may be suggested that this is not the sort of consideration which is intended by the legislation. The argument provided may be that the whole phrase is rent free and without any other consideration’ and so it is inferred that the consideration to which the Act refers must be similar to rent and must be paid during the period of occupation and not at the beginning of it. This argument should not be accepted. The phrase any other consideration’ is written in the widest possible terms and was clearly intended to be interpreted widely.