IHTM14332 - The reservation: possession and enjoyment by the donee

Possession and enjoyment of the property must have been bona fide assumed by the donee to prevent a GWR. This means that

• the beneficial interest in the gifted property must have been effectively vested in the donee (in that the transfer of the property/beneficial interest to the donee was duly completed)

and

• the donee must in fact have had enjoyment of the gifted property, for example by occupying it or receiving the income produced by it. The mere legal right to enjoy it is not sufficient.

A number of examples of these conditions follow

Example 1

In 1997 the donor conveys his house into the joint names of himself and his daughter equally. She does not take up occupation and the donor continues to occupy the whole property rent free until his death some years later.

This simple example can be used to illustrate several points

a) Although the gifted property, one half share of the house, is properly vested in the donee,

b) the donee has not assumed bona fide possession and enjoyment of it. Accordingly the gift is a GWR on that basis alone, under FA86/S102 (1)(a).

c) It is also a GWR under FA86/S102 (1)(b), because the donor is in occupation not only of his retained half share (as he is entitled), but of the gifted half share as well. That gifted share is not then enjoyed to the entire exclusion of the donor, see the further instruction (IHTM14333). The gift is therefore a GWR under both sub-sections.

d) If however the donor had paid his daughter a full rack rent for his occupation of her half share, her receipt of rent from him would constitute bona fide possession and enjoyment by her, and his occupation of her half share would be for full consideration (IHTM14341). In these circumstances neither S102(1)(a) nor S102(1)(b) would be infringed, and the gift would not be a GWR.

e) The position is different again if the donor and donee both occupy their respective half shares. Prior to 9/3/99 the position was governed by the so called "Hansard Statement" given by the Minister of State in Standing Committee G (Hansard, 10 June 1986, col. 425) which read

"... for example elderly parents make unconditional gifts of undivided shares in their house to their children and the parents and the children occupy the property as their family home, each owner bearing his or her share of the running costs. In these circumstances the parents occupation or enjoyment of part of the house they have given away is in return for the similar enjoyment by the children of the other part of the property. Thus the donor's occupation is for full consideration ..."

In other words, the gift is not a GWR under either sub-section. For the position after 9/3/99 the new FA86/102B (1) applies, which confirms the approach in the Ministerial Statement, but makes the position clearer. In any event it was considered preferable to have statutory authority. Also see the further instruction (IHTM14360).

Example 2

The donor conveys her property into the joint names of herself and her two children, Andrew and Bryony equally. Andrew takes up occupation with his mother and stays there until her death. Bryony does not take up occupation at any time.

The one third given to Andrew is not a GWR unless there is some collateral arrangement (for example, an agreement that Andrew should pay all the running costs) which amounts to a benefit to the donor “by contract or otherwise”.

The one third given to Bryony is a GWR, unless the donor pays Bryony a rent which is full consideration.

Example 3

A mother gives the books in her extensive and valuable library to her two sons equally. The sons whilst acknowledging the gift have no facilities for storing the books and request that they remain in the mother’s library.

It is possible that there has not been an effective gift and the books still belong to the mother. Even if there is a gift the arrangement would not be to the deceased’s entire exclusion and would constitute a GWR.

Example 4

A farmer, on taking his son into partnership, makes a gift to him of a share of all the partnership assets including the land. They then share the profits and losses in the same proportion as they own the partnership assets at commencement. The farmer dies ten years later.

This is not a GWR. The son has taken possession and enjoyment of the partnership share gifted to him in the form of his share of profits. The father’s share of profits is referable to his own partnership share, not the share gifted.

Example 5

Mrs Foster and her son, Gordon, are in partnership. The partnership farms land which belongs to Mrs Foster but there is no formal tenancy agreement and no rent is paid. Mrs Foster gives a half share of the land to her daughter, Harriet, who is not a partner. The partnership remains in rent free occupation of the land until Mrs Foster’s death.

This is a GWR. Harriet has not assumed possession and enjoyment of the gifted share of the land to the entire exclusion, or virtually to the entire exclusion, of Mrs Foster.

Note to the joint property examples

The joint property examples are on the basis that the joint owners take the property in equal shares. Refer any case in which the transferor takes less than an equal share to Technical Group.