What is the Gifts with Reservation (GWR) legislation
Gifts with Reservation (GWR) legislation was introduced in 1986 to avoid individuals making gifts with strings attached. The legislation was designed to combat instances of donors seeking to transfer property outside of their estate, whilst continuing to derive benefit.
A straightforward example of this is when a donor transfers his entire interest in his property to another. He remains living in the property until the date of his death.
Gifts with reservation (GWR) legislation will be applicable to this donor because he continued to derive a benefit from the property after the date of the gift. The property will then be deemed by the legislation to form part of his estate at the date of his death.
Without the Gifts with Reservation (GWR) provisions you could simply transfer property out of your estate, but continue to derive a benefit by remaining in occupation and the property would not be an asset of your estate at the date of your death.
The legislation provides that where an individual (IHTM14312) disposes of any property by way of gift on or after 18 March 1986 a reservation of benefit will arise under FA86/S102(2) where either:
- – the donee does not assume bona fide possession and enjoyment of the property at or before the beginning of the relevant period, FA86/S102(1)(a), or
- – at any time during the relevant period the gifted property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise, FA86/S102(1)(b).
The relevant period is the time ending at the donor’s death and beginning:
- – seven years before the death, or
- – if later, the date of the gift.
There are additional rules relating to gifts of land after 9 March 1999 which were inserted into FA86 by FA99/S102A, B and C. This provides that a reservation of benefit will arise when the donor:
- – enjoys a significant right or interest, or
- – is party to a significant arrangement, in relation to the land
and the donor occupies the gifted land or enjoys some right in relation to the gifted land (IHTM14314).
There is an explanation about why the Gifts with Reservation (GWR) rules are necessary at IHTM04071.
When the Gifts with Reservation (GWR) rules do not apply
The rules do not apply if:
- – the gift is an exempt transfer under most exemption provisions (IHTM14318)
- – the reservation is of an excluded type (IHTM14340)
Considering Gifts with Reservation (GWR) charges
HMRC will consider the instructions for both:
In more complicated situations, HMRC may also need to consider:
- – tracing (IHTM14371) where the property is dealt with by the donee
- – the implications for settled property (IHTM14391),
- – policies (IHTM14421), or
- – the pre-owned assets (POA) income tax charge
The POA income tax charge was introduced by FA04/Sch15 specifically to counter a number of arrangements that sought to avoid the reservation of benefit rules.
Consequently, where someone has disposed of property and continues to benefit from it, but HMRC concludes that a reservation of benefit does not arise, there is a possibility that a POA charge should arise instead.
Detailed guidance about the POA charge is at IHTM44000.
The tax consequences, including determining double charges relief (IHTM14711) will depend on whether the reservation still exists at the donor’s death, or ceased previously. You can find advice on how Gifts with Reservation (GWR) is brought into the charge for tax later in this section of the manual (IHTM14591).
The Gifts with Reservation provisions provide that the gifted property is deemed to be treated as part of the donor’s estate immediately before death.
Although the property does not pass on death under the will or intestacy, exemptions that are available on death such as spouse exemption (IHTM11031) and charity exemption (IHTM11101) may be applicable to the transfer deemed to be made on death if, on death, the property passes to an exempt beneficiary.
However, if the reservation ceases during the lifetime of the donor since the donor is deemed to have made a disposition which is a potentially exempt transfer (IHTM04064), no exemptions can apply.
Annual exemptions (IHTM14141) will not apply to the transfer deemed to be made on death or deemed to be made when the reservation ceases.
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you would like us to assist you with any queries regarding any potential Gifts with Reservation (GWR), making a disclosure to HMRC about undeclared income or if you need any assistance with the preparation and submission of your business accounts and self-assessment tax returns to HMRC.
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Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.