IHTM14360 - Gifts With Reservation: interests in land
The decision in the 1999 case of Ingram v C I R showed that
the existing rules on gifts with reservation did not work as
intended for gifts of interests in land. New regulations were
quickly put into place through the 1999 Finance Bill for extension
of the Gift With Reservation rules.
The provisions on GWRs were amended by the insertion of three
new sections after FA86/S102 , mainly in FA86/S102A which provides
the primary rules on GWRs where property given away is an interest
in land.
For gifts of interests in land made on or after
9 March 1999, treat the gift as being a GWR if
- there is some interest, right or arrangement which
- enables or entitles the donor to occupy or enjoy the land concerned to a material degree
- without paying full consideration.
There is no GWR where a donor gives away the freehold interest
in a house but retained, or was immediately granted, a lease at a
full rent. The transfer of the freehold would be a PET (
IHTM04057).
Apply the existing GWR provisions in s.102(3) and (4) to a
gift
- in the relevant period ( IHTM14301)
- when the donor or their spouse or civil partner either has a significant right or interest,
- or is a party to a significant arrangement (see below),
relating to the land.
The revised approach
The fundamental concept of the revised legislation is that the
GWR provisions focus on the land itself. The second linked concept
is that of a significant right, etc. relating to the land.
The changed approach is away from the donor
“reserving” an interest or benefit in the property
given and instead to latch on to the enjoyment of an interest in
the underlying land itself.
A pre-Ingram scheme which had previously escaped the GWR
provisions, but now thought to be caught by the new legislation, is
the Reversionary Lease scheme in which a donor (who has owned their
house for at least 7 years) grants a long lease for (say) 999 years
to the proposed donee, but the lease is not to take effect until
some future date, normally beyond the donor’s life expectancy
(although less than 21 years to avoid falling foul of Law of
Property Act 1925 S149 (3)).
The donor’s occupation, although acquired more than 7
years before the creation of the lease is nevertheless considered
to be a “significant right in relation to the land”
within the meaning of s.102A(3) and thus within the revised rules.
Refer any such scheme to Technical Group in the first instance.
What is a significant right, interest or arrangement?
It qualifies if it entitles or enables the donor to occupy all
or part of the land, otherwise than for full consideration in money
or money’s worth.
Undivided shares of land (FA86/S102B)
This provision sets out in statutory form the practice which
has already been adopted for transfers of undivided shares of land.
It confirms that where, for example, a house is placed by the donor
in the joint names of donor and donee, both occupy the property and
both share the outgoings, that will not be a GWR.
Links between the old and new rules (FA86/S102C)
This applies existing ancillary and relieving provisions to
the other inserted sections, and governs the interaction between
the old and the new legislation.
You will note, for example, that a gift of land to a
non-interest in possession trust of which the donor is a potential
beneficiary will fall within S102 rather than S102A because the
membership of a discretionary class does not of itself enable or
entitle the donor to occupy land or to enjoy a right in relation to
it.
Refer to Technical Group as usual for guidance in any case
where you consider that a GWR is in point.
