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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Lifetime transfers: gifts with reservation (GWRs): the reservation: full consideration in cases of land and chattels

The donor’s possession, occupation or enjoyment of gifted land or chattels is not treated as a reservation if it is for full consideration in money or money’s worth.

You can review the example of full consideration not being paid throughout the relevant period earlier in this section. (IHTM14335)

Example 1

Peter and Charles have been in partnership together since 1980 sharing profits equally. The land is owned by Peter and occupied by the partnership rent free without any formal tenancy agreement. In 1989 Peter gives the land to Charles but the partnership continues to occupy it on the same basis. At the same time the profit sharing ratio is adjusted in favour of Charles.

Provided the increase in Charles’ share of profits represented full consideration in money or money’s worth for occupation of the land, FA86/Sch20/para 6(1)(a) will apply and this will not be a GWR.

Peter is in effect occupying the land through the partnership and this prima facie constitutes a reservation. However, we accept that the let-out in Para 6(1)(a) may be satisfied by an appropriate upward adjustment (in lieu of rent) reflected in the donee’s share of the partnership profits. The circumstances of the case must determine what is ‘appropriate’ having regard to what might be agreed under an arm’s length deal between unconnected persons.

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Example 2

Angela gives a valuable antique vase to her daughter, Rosemary, by deed, but retains the vase at her home and pays Rosemary the full market rental in consideration until her death.

As full consideration was given, the donor’s possession of the vase is disregarded for the purposes of deciding whether there is a reservation. The GWR conditions are also satisfied because receipt of the consideration by the donee amounts to possession and enjoyment of the gifted property by her.