Gifts with reservation ― land

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Gifts with reservation ― land
  • Introduction
  • Full consideration
  • Gift of an interest in land
  • Gift of a share in land
  • Changed circumstances following a gift of land
  • Pre-owned assets
  • Residence nil rate band (RNRB)

Introduction

Questions concerning gifts with reservation (GWR) provisions are more likely to arise in connection with gifts of land than any other type of gift. A variety of factors contribute to this:

  • typically, land and buildings carry a high value and often comprise the major asset in an estate. Gifts of land, if effective for IHT, will result in a significant tax saving.
  • although the land may be the most valuable asset in the estate, the property in question may be the donor’s home, or a second property which he is reluctant to give up entirely
  • often, there is an intention to keep land and buildings in the family when the owner dies, whereas other assets will be realised in cash. This makes it difficult to make a lifetime gift of the portion that is not needed.
  • land and buildings, which do not produce income, present an obvious candidate for disposal, enabling the donor to retain liquid investments
  • property, such as a house, cannot easily be divided up into separate physical units, but several parties can occupy it simultaneously

Following on from the above, clients are often keen to pursue arrangements which will enable them to remove the value of land from their estate and at the same time continue to derive some benefit from it. As a result, the legislation contains specific provisions relating to land.

Full consideration

A gift of land is not a GWR if the donor pays full consideration in money or money’s worth for his occupation or enjoyment. The same exception applies to chattels. See the Gifts with reservation ― exceptions guidance note.

FA 1986, Sch 20, para 6(1a)

If a parent gives his home to his children

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