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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Pre-owned assets: exemptions: exclusion of reservation of benefit under FA86/Sch20/Para6

Where the chargeable person makes a gift that is not subject to a reservation of benefit because the benefit is excluded under FA86/Sch20/Para6(a) & (b), it is also exempt from the POA charge under FA04/Sch15/Para11(5)(d). This covers two situations.

Full consideration

Where the donor gives away land and continues to occupy it, or gives away a chattel and continues to use and enjoy it, but pays full consideration in money or money’s worth, there is no reservation of benefit (IHTM14341) nor is there a POA charge. What is full consideration and the way the parties should go about the transaction to avoid being subject to a charge as a reservation of benefit applies equally to the exemption from the POA charge.

If the consideration paid is less than full consideration, or if they initially pay full consideration but, over time, this falls below market rates, a reservation of benefit will arise at the time they ceased to pay full consideration. There will be no POA charge in view of FA04/Sch15/Para11(5)(a).

Change in donor’s circumstances

Where the donor makes a gift of property that is not subject to a reservation of benefit, but they subsequently have to return to the property due to an unforeseen change in their circumstances and are unable to look after themselves because of age or infirmity, there is no reservation of benefit (IHTM14342) nor is there a POA charge.