Gifts With Reservation of Benefits (GWR) – Inheritance Tax (UK)
A GIFT WITH RESERVATION OF BENEFIT is a lifetime gift where:
- the legal ownership of an asset is transferred, but
- the DONOR RETAINS SOME BENEFIT in the asset gifted.
A common example of this is the gift of a house where the donor continues to live in the property.
ANTI AVOIDANCE RULES apply to make sure that these gifts do not escape from INHERITANCE TAX.
The gift is effectively ignored for INHERITANCE TAX PURPOSES and the asset is INCLUDED IN THE DEATH ESTATE OF THE DONOR when they die.
Any tax due on the asset is payable by the legal owner of the asset I.E. DONEE.
The table below shows that with GIFTS WITH RESERVATION, irrespective of whether the gift with reservation is lifted or not, there are two possible valuation points for INHERITANCE TAX. HMRC is allowed to choose the valuation point (either (1) or (2)) depending on which gives the higher charge to INHERITANCE TAX.
|RESERVATION STILL IN PLACE ON DEATH OF DONOR||RESERVATION LIFTED PRIOR TO DEATH OF DONOR|
|(1) ORIGINAL GIFT: POTENTIALLY EXEMPT TRANSFER (PET) VALUATION AT MARKET VALUE OF ASSET ON DATE OF GIFT||(1) ORIGINAL GIFT: POTENTIALLY EXEMPT TRANSFER (PET) VALUATION AT MARKET VALUE OF ASSET ON DATE OF GIFT|
|(2) IF DONOR STILL USES ASSET THEN ASSET ENTERS DEATH ESTATE AT THE MARKET VALUE AT DATE OF DEATH OF THE DONOR||(2) IF DONOR LIFTS THE RESERVATION PRIOR TO DEATH, A DEEMED POTENTIALLY EXEMPT TRANSFER (PET) IS CALCULATED BASED ON MARKET VALUE OF ASSET AT DATE RESERVATION LIFTED.|
Exceptions to the Gifts With Reservation of Benefit (GWR) Rules
Where FULL CONSIDERATION is paid for use of the asset by the DONOR then the GWR rules do NOT apply. EG. If a DONOR gifts a property and pays the going market rate of rent to continue living there.
Where the circumstances of the DONOR have changed in a way that could not be foreseen at the time of the gift.