I3.420 GWR—Tracing money, settled property and shares
The tracing rules relating to property received in consideration for an original gift of (unsettled) property subject to a reservation do not apply where the original gift was 'a sum of money in sterling or any other currency'1. HMRC uses the term 'absolute gift of cash' when referring to such gifts2.
Therefore, where there is a gift of money, the GWR provisions can apply if the money itself becomes property subject to a reservation, but if it is spent on other property in which the donor retains a benefit, they do not apply. This element of the legislation raises a number of problematic issues discussed below:
– how can a donor reserve a benefit in an absolute gift of money?
– if a donor uses money to purchase a specific gift of other property, is he making a gift of money or of other property?
– where a donee uses a gift of money to purchase other property which he then allows the donor to use, have the GWR provision been avoided?
The situation is different if an original gift of money is settled. A gift with reservation of money that is a gift into a settlement falls within the statutory tracing provisions for settlements3. These provisions also apply to a gift with reservation that begins by being an absolute gift but the donee settles it by lifetime gift, or it becomes settled by Will or under the intestacy rules on his death4. See below