The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The gift with reservation (GWR) provisions have a very broad application to almost all gifts in which the donor retains a benefit. However, in certain limited circumstances, a gift from which the donor continues to benefit will not be taxed as a GWR in his estate where:
the donor may give full consideration for his retained benefit, and
the donor may retain a very limited benefit from the gift
Additionally, some gifts are exempt from the GWR provisions, with some particular exceptions relating to land.
A sale for full consideration cannot be a gift with reservation. This is made clear in the primary legislation in that the provisions can only apply to disposals ‘by way of gift’. A sale at an undervalue does include an element of bounty and can be brought within the GWR rules.
Where the disposal is a gift and the donor wishes to retain some benefit for himself, the tax consequences of a GWR may be avoided if he gives full consideration for the benefit. This exception applies specifically to gifts of land and chattels: occupation, enjoyment or possession of the gifted property is disregarded if it is for full consideration in money or money’s worth.
The exception has led to gift and leaseback arrangements. A donor may give away property then take a commercial lease for continued occupation or enjoyment. Ideally a market rent should be determined on an arm’s length basis with each party to the bargain being independently advised.
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