IHTM14301 - Lifetime transfers: gifts with reservation (GWRs): requirements for a GWR
The gift with reservation (GWR) legislation was introduced in 1986 to avoid individuals making gifts with strings attached. The legislation was designed to combat instances of donors seeking to transfer property outside of their estate, whilst continuing to derive benefit. A straightforward example of this is where a donor transfers his entire interest in his property to another. He remains living in the property until the date of his death. This will be a GWR because he continued to derive a benefit from the property after the date of gift. The property will then be deemed by the legislation to form part of his estate at the date of his death.
Without the GWR provisions you could simply transfer property out of your estate, but continue to derive a benefit by remaining in occupation and the property would not be an asset of your estate at the date of your death.
The legislation provides that where an individual (IHTM14312) disposes of any property by way of gift on or after 18 March 1986 a reservation of benefit will arise under FA86/S102(2) where either
- the donee does not assume bona fide possession and enjoyment of the property at or before the beginning of the relevant period, FA86/S102(1)(a),or
- at any time during the relevant period the gifted property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise, FA86/S102(1)(b).
The relevant period being the time ending at the donor’s death and beginning:
- seven years before the death, or
- if later, the date of gift.
There are additional rules relating to gifts of land after 9 March 1999 which were inserted into FA86 by FA99/S102A, B and C. This provides that a reservation of benefit will arise when the donor
- enjoys a significant right or interest, or
- is party to a significant arrangement, in relation to the land
and the donor occupies the gifted land or enjoys some right in relation to the gifted land (IHTM14314)
There is explanation about why the GWR rules are necessary at IHTM04071.
When the GWR rules do not apply
The rules do not apply if
- the gift is an exempt transfer under most exemption provisions (IHTM14318)
- the reservation is of an excluded type (IHTM14340)
Considering GWR charges
You will need to consider the instructions for both
In more complicated situations you may also need to consider
- tracing (IHTM14371) where the property is dealt with by the donee
- the implications for settled property (IHTM14391),
- policies (IHTM14421), or
- the pre-owned assets (POA) income tax charge
The POA income tax charge was introduced by FA04/Sch15 specifically to counter a number of arrangements that sought to avoid the reservation of benefit rules. Consequently, where someone has disposed of property and continues to benefit from it, but you conclude that a reservation of benefit does not arise, there is a possibility that a POA charge should arise instead. Detailed guidance about the POA charge is at IHTM44000. You should refer to Technical any case where you consider that a POA charge might arise instead of a GWR.
The tax consequences, including determining double charges relief (IHTM14711) will depend on whether the reservation still exists at the donor’s death, or ceased previously. You can find advice on how GWRs are brought into the charge for tax later in this section of the manual (IHTM14591).