IHTM14314 - The gift: examples of the property given
The following are examples to help you ascertain the property given.
Example 1
In 1998 Aarif gave his property to his daughter, Yasmin. Yasmin then leased the property back to Aarif at less than the full market rent. Yasmin was not under a legal or equitable obligation to do this.
This is a gift with reservation (GWR). The property disposed of was the unencumbered freehold, not the reversion. The lease is a reserved benefit which infringes the conditions of FA86/S102 (1)(b).
However if Aarif had not given the unencumbered freehold straight to Yasmin, but instead given it to nominees or trustees to hold forhim, and those trustees/nominees then granted the lease back to Aarif, it is then possible for Aarif to instruct the trustees/nominees to make a gift to Yasmin of the freehold subject to the lease. That was the outline situation in Ingram v IRC [1999] STC 37, and which was held by the Law Lords not to be a GWR. Although Aarif continues to enjoy a benefit from the whole property in the shape of the lease for a nominal rent, that benefit is not derived from the gift to Yasmin. It derives from the lease itself which was already in existence at the time of the gift. Aarif has separated his interests in the property or ‘carved out’ a lease which is retained, and given away a separate interest in the property, the freehold revision. He has not given away the whole property but kept something back from it. Because of this loophole the FA99 introduced IHTA84/S102A which provides that if, after a disposal by way of gift on or after 9t h March 1999, there is enjoyment of any significant right or interest in the property by the deceased or their spouse or civil partner (IHTM11032) which is not for full consideration, then that constitutes a reservation of benefit.
You should bear in mind that the Ingram case, and FA86/S102A, only apply where the subject matter of the gift is land. It is possible to enter into similar arrangements where the subject matter of the gift is personal property, usually valuable chattels. (This text has been withheld because of exemptions in the Freedom of Information Act 2000). (This text has been withheld because of exemptions in the Freedom of Information Act 2000)
(This text has been withheld because of exemptions in the Freedom of Information Act 2000)
Example 2
In 1980 Alec granted a long lease of his land in favour of a private company, XYZ Ltd. Alec owned all the issued capital of the company.
In 1988 Alec gave the freehold reversion to his son, Bruce. Alec continues to occupy the land (through the company) until his death in 1995.
As the lease arose under a prior independent transaction, we can accept that the property disposed of by the gift was the reversion. So there is no GWR claim.
Example 3
The facts are as in Example 1 except that Aarif’s gift to Yasmin was conditional on Yasmin granting the lease back. The existence of the condition and Aarif’s right to enforce it are clearly established.
This is not a GWR. The gift is of the property, subject to the requirement for Y to grant the lease back to A., not the unemcumbered freehold, so the retained benefit is referable to the obligation to grant the lease. This reasoning, used in In re Nichol, deceased (1974) 1 W.L.R.296;(1975) 1 W.L.R.534, by Walton J (although overturned in that case on appeal) was considered and preferred by The House of Lords in Ingram, when it reached the decision there that an equitable obligation to grant a lease meant that the donees had never at any time acquired the land free of the leasehold interest.
Example 4
Amanda gives her land to her son, Bradley, but. as a member of a shooting syndicate, Amanda retains the right to shoot game on the property.
If the shooting rights were excluded from the gift, the retention of those rights would not constitute a reservation. If the rights arose after the gift, then provided the syndicate paid a commercial rent for the privilege, it would still not be regarded as a GWR. The position might be different if the donor was subsequently allowed to shoot over the land gratuitously.
Example 5
Aled gives some of his shares in a private company to Bridget, but retains the right under the company’s articles, and in common with the other existing members of the company, to reacquire those shares at a fair price.
The mere retention of that pre-existing right to buy back the shares would not by itself constitute a reservation of benefit to the donor. Nor would the position be different if the price payable under the pre-emption provisions were less than a fair price or the market value.
Example 6
Mei gives her business to her daughter Lian, Lian undertakes personal responsibility for any business liabilities incurred by, and due from, the donor.
That undertaking would not be regarded as a reservation. The transaction would be treated as a gift of the net assets.
Example 7
Avril enters into an agreement with a School Fees Insurance Agency to pay the school fees for her grandson and transfers a capital sum to that Agency. The deed provides for the return of all or part of the moneys so transferred to the donor, or their legal personal representatives, in circumstances
- where the payment exceeds the actual School Fees
or
- where the child dies during the currency of the plan.
The right to receive any refund would not be regarded as forming part of the gifted property and no question of a reservation of benefit arises. However you should refer any enquiry about the application of the GWR provisions to School Fees arrangements to Technical Group.
