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HMRC internal manual

Inheritance Tax Manual

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Lifetime transfers: gifts with reservation (GWRs): the reservation: interests in land

The decision in the 1999 case of Ingram and another v Inland Revenue Commissioners showed that the existing rules on gifts with reservation did not work as intended for gifts of interests in land. New regulations were quickly put into place through the 1999 Finance Bill for extension of the gift with reservation rules.

The provisions on GWRs were amended by the insertion of three new sections after FA86/S102, mainly in FA86/S102A which provides the primary rules on GWRs where property given away is an interest in land.

For gifts of interests in land made on or after 9 March 1999, treat the gift as being a GWR if

  • there is some interest, right or arrangement which
  • enables or entitles the donor to occupy or enjoy the land concerned to a material degree
  • without paying full consideration.

There is no GWR where a donor gives away the freehold interest in a house but retained, or was immediately granted, a lease at a full rent. The transfer of the freehold would be a PET (IHTM04057).

Apply the existing GWR provisions in FA86/S102(3) and (4) to a gift

  • in the relevant period (IHTM14301)
  • when the donor or their spouse or civil partner either has a significant right or interest,
  • or is a party to a significant arrangement (see below),

relating to the land.

The revised approach

The fundamental concept of the revised legislation is that the GWR provisions focus on the land itself. The second linked concept is that of a significant right relating to the land.

The changed approach is away from the donor ‘reserving’ an interest or benefit in the property given and instead to latch on to the enjoyment of an interest in the underlying land itself.

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What is a significant right, interest or arrangement?

It qualifies if it entitles or enables the donor to occupy all or part of the land, otherwise than for full consideration in money or money’s worth.

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Reversionary Lease Schemes (IHTM44102)

A reversionary lease is simply a lease with a deferred start date. The donor grants a long lease of their property for say 999 years to the donee, but the lease does not take effect until some future date.

Reversionary lease schemes entered into prior to 9 March 1999 succeed in avoiding the reservation of benefit legislation so long as the lease contains no covenants of benefit to the donor, such as to keep the property in full repair. The Pre-Owned Assets (POA) charge will instead apply.

Where a reversionary lease scheme is entered in to, on or after 9 March 1999, it is not caught by FA86/S102A (IHTM14360) if the freehold interest was acquired more than 7 years before the gift FA86/S102A(5), so the reservation of benefit rules cannot apply and a POA charge arises, so long as the lease contains no covenants of benefit.

Even where the freehold interest was acquired within seven years the GWR provisions may not apply if the remaining provisions of the section apply - where the donor pays full consideration for their occupation or enjoyment of the land FA86/S102A(3).

Further details can be found under IHTM44102 

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Undivided shares of land (FA86/S102B)

This provision sets out in statutory form the practice which has already been adopted for transfers of undivided shares of land. It confirms that where, for example, a house is placed by the donor in the joint names of donor and donee, both occupy the property and both share the outgoings, that will not be a GWR.

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Links between the old and new rules (FA86/S102C)

This applies existing ancillary and relieving provisions to the other inserted sections, and governs the interaction between the old and the new legislation.

You will note, for example, that a gift of land to a non-interest in possession trust of which the donor is a potential beneficiary will fall within FA86/S102 rather than FA86/S102A because the membership of a discretionary class does not of itself enable or entitle the donor to occupy land or to enjoy a right in relation to it.

Refer to Technical as usual for guidance in any case where you consider that a GWR is in point.