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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Pre-owned assets: exemptions: cash gifts and exclusion of reservation of benefit provisions

Where the contribution condition relating to land (IHTM44005) or chattels (IHTM44008) applies, FA04/Sch15/Para11(8) provides that the exclusion for outright gifts of cash from the normal reservation of benefit tracing provisions in FA86/Sch20/Para2(2)(b) (IHTM14371) does not apply. This has the effect that the normal substitution provisions in FA86/Sch20/Para2(1) do apply, so that if the donee purchases a property with the cash, that property shall be treated as having been comprised in the original gift. This can bring the exemptions covered at IHTM44046-48 into play in a way that would not normally apply where the gift is of cash.

Example

Andrew gives his daughter £150,000 in 2006. In 2008, they decide to buy a property together worth £300,000. The contribution condition (IHTM44005) will be met and Andrew has not made a gift with reservation as the gift was of cash. Andrew has not made a gift of an undivided share of land, so the exemption at IHTM44047 does not apply. So on the face of it, Andrew is subject to the POA charge.

However, the effect of FA04/Sch15/Para 11(8) is to allow the normal tracing rules that apply to substitutions for the reservation of benefit provisions to apply. Therefore the property the donee acquired with cash is treated as being comprised in the original gift. So, as the original gift is treated as a gift of an undivided share of land, the exemption from the POA charge for such gifts (IHTM44047) does apply.

One consequence of this will be that if the donee ceases to occupy the property, the exemption from the POA charge will cease.

If the daughter had purchased the property in her own name and Andrew had given his daughter the money before 6 April 1998, or if he had not moved into the property within 7 years of the gift being made, the exclusion for outright gifts of money (IHTM44036) will apply.