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HMRC internal manual

Inheritance Tax Manual

Gifts with reservation: deceased's residence

The legislation contains no provisions dealing specifically with the availability of instalments on tax chargeable under the gifts with reservation (GWR) (IHTM04071) provisions.

The most common application concerns the deceased’s residence.  Though the subject matter of a lifetime gift to the children, the deceased continues to live there rent-free until death.  In this type of situation:

  • there is a GWR within IHTA84/S102 (3) under which the residence is deemed to be property to which the deceased ‘was beneficially entitled immediately before his death’.  The property is therefore part of the donor’s estate within IHTA84/S5 (1) and taxable under IHTA84/S4 (1) and
  • the property was the same at both date of gift and date of death and was clearly qualifying property within IHTA84/S227 (2)(a) at both dates.

When tax is payable under the GWR provisions in this type of situation, instalments are available whether the tax is borne by the transferees or the estate.  (The gift will also be a potentially exempt transfer (PET) (IHTM04057). If that PET becomes chargeable on the death, you will also need to consider that charge and the application of the Double Charges Regulations (IHTM14691)