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HMRC internal manual

Inheritance Tax Manual

Gifts with reservation of benefit: Notional transfer by the donee

In deciding whether the property qualifies for agricultural relief on the notional transfer by the donee at the time of the GWR charge (IHTM24200) you will need to apply the usual tests to establish whether the relief is due. In addition, you will need to bear in mind that

  • occupation by the transferor both before and after the gift is treated as occupation by the donee for the purposes of the occupation condition, FA86/SCH20/para8 (2)(b) (IHTM24071),
  • ownership by the transferor before the gift is treated as ownership by the donee for the purpose of the ownership condition, FA86/SCH20/para8 (2)(a) (IHTM24100)
  • if the donee dies before the time of the GWR charge, for the period after the donee’s death you should treat the donee’s personal representatives or beneficiaries of the GWR property as the donee, FA86/SCH20/para8 (5)
  • for shares and securities only, FA86/SCH20/para8 (3) treats the ownership requirement in IHTA84/S123 (1)(b) as satisfied in connection with the notional transfer by the donee at the time of the GWR charge.
  • Note that if the GWR charge arises on the release of the reservation, the transferor is treated as making a PET and the additional conditions for lifetime transfers will also need to be satisfied at the date of death. (IHTM24171)

Whether the higher or lower rate (IHTM24140) of relief applies is determined by reference to that notional transfer by the donee, FA86/SCH20/para8 (1A)(b), at the time of the GWR charge. It follows that the transitional provisions cannot apply. (IHTM24145)


In 1980 A purchases a farm and occupies it. In May 1990 he gives it to his son B. But A continues in occupation rent-free until his death in December 1992 (without infringing B’s right to vacant possession).

This is a GWR. The farm qualifies for relief at the date of gift. Although B has neither owned the property for seven years nor occupied it for agricultural purposes for two years ending with the date of the notional transfer by B on A’s death, relief is available at the higher rate (100%) because B can count A’s occupation as his own.