Lifetime transfers: schemes to exploit annual exemption: transfer by sale
This scheme operates where:
- the transferor sells property, usually a house, to the transferee
- the transferee either does not pay the purchase price, or pays only part, instead the purchase price, or balance, is treated as a loan by the transferor to the transferee
- each year the transferor releases a part of the loan equivalent to the annual exemption (or funds a repayment of that amount).
In cases of this type you will need to establish:
- what the sale price was and whether this was considered to be the full open market value
- whether the subsequent transfers by way of releases of the loan were legally effective, and
- by whom and on what basis the property was occupied between the sale and the death.
Your examination will enable you to consider the main questions arising:
- is the sale within IHTA84/S10 (1) or a transfer of value (IHTM04024)?
- are the annual gifts effective in general law?
- do the associated operations provisions (IHTM14821) apply?
- is there a claim under the gift with reservation (IHTM04071) rules?
Take account of the terms of the loan. If repayment was deferred or it was repayable by instalments, consider the ‘future payments’ (IHTM14871) instructions.
Bear in mind that under English law a full or partial release of a debt is not effective in law unless it is made by deed.
If a claim is made to reduce, or leave out of account, a debt due to the deceased that had been cancelled by annual releases not evidenced by Deed you should refer the case to Technical.
In Scots law, acceptilation is the technical term applicable when the creditor discharges their right without payment or performance. Following the Requirements of Writing (Scotland) Act 1995 s11 acceptilation may be implied from the parties conduct or correspondence or proved by any competent means. See the Stair Memorial Encyclopaedia Volume 15 para 873.