When is a gift not a gift?
A gift of property made by a person on or after the 18th March 1986 is called a gift of reservation (GWR) as long as the person is still benefitting from the property, ie they are still living in it. If this benefit is reserved, then it will be included as a part of the gift givers estate for inheritance tax purposes, even if they no longer own the property, they are still using it for their own benefit.
When talking about a GWR, a gift can mean a sale which was made deliberately below the market value of the property. For example, if a property was worth £1million and a person sells it for £750,000. The transfer is part sale and part gift meaning the £250,000 loss to the estate would be treated as a potentially exempt transfer and would be included in the deceased’s estate if they pass within 7 years of the sale, even if they didn’t receive any benefit from the transfer.
The GWR rules have only been around for 30 years meaning if someone placed an investment in a trust before the 18th March 1986, they will not get caught unless further gifts are made on or after that date.
The use of these GWR rules by HMRC means it is very important to ensure that any gifts or loans made to adult children or anyone else are properly recorded as failure to do so could have them fail for IHT purposes.
As always, experienced advice is essential, please call us for help.