CheckLists.Tax (beta)
C2: Gift by an individual
INCOME TAX: SETTLEMENTS CODE
Settlements legislation: attribution of income to donor
- Conditional/revocable gifts to persons other than spouse/minor children
- Query
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Outright gifts to persons other than spouse/minor children
- Not caught because the settlor/spouse will not (in the absence of further arrangements) have retained an interest.
- Gifts to spouses are problematic because the settlor 'retains' an interest if his/her spouse has an interest in the gifted property.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Gift is a settlement
General rule
- "[91] The Revenue's first argument was that Mrs Jones paid £1 for her share, and that therefore there was no "outright gift", merely a purchase at an undervalue. In my opinion, that point will not do, and it was not strongly pressed by Mr Furness. A purchase at an undervalue involves, as a matter of ordinary language, an element of gift. There was a "settlement" in the present case because there was an "arrangement", and there was an "arrangement" because, for the reasons already explained, there was a substantial element of "bounty" when Mrs Jones acquired her share." (Garnett).
Transfer to spouse giving effect to constructive trust
- In Patmore, husband and wife paid equally for shares but wife only got small proportion of shares. Subsequent allotment of shares to her was not bounteous because it gave effect to her entitlement under a constructive/resulting trust.
Legislation:
Cases:
Garnett v. Jones [2007] UKHL 35;
Patmore v. HMRC [2010] UKFTT 334 (TC), Judge Mosedale;
HMRC manuals:
Commentary:
See also:
- Outright gift between spouses (protected)
General rule
- Attribution of income to settlor disapplied where it is (s.626(1)):
(1) Outright gift is of property;
(2) From one spouse/civil partner to the other;
(3) Gift carries right to the whole income;
(4) Property is not wholly/substantially a right to income.
Meaning of gift
- Includes transfer of shares by company formation agent with 'donor's' consent (Garnett, §28).
Meaning of outright gift
- Gift subject to conditions is not an outright gift (s.626(4)).
- Gift not outright if there are any circumstances in which the property/related property is, will or may become payable/applicable for the benefit of the giver.
- Query whether such use must be part of the original plan at the time of the gift: "[68] It seems unlikely in the extreme that the interpretation of the last sentence of s660A(6) is that it captures all outright gifts as there is always a power for the donee to give the property back to the donor. If this were the correct interpretation it would render s660A(6) entirely otiose. It seems to me that the proper interpretation of this qualification on “outright gift” is that it applies where the pre-existing arrangement is that the income will or is or might be applied for the donor’s benefit." (Patmore).
Gifted property is used/intended to be used to benefit spouse (e.g. pay off joint debt)
- In Patmore, there was no original arrangement that the dividends to the wife would be paid to the husband.
- FTT said that the mere fact that dividends were actually paid to spouse was not enough to disapply the outright gift exemption (§§67 - 68).
- However, it was always the plan to use the dividends to pay off a debt owed jointly by the wife and husband.
- Accordingly, the exemption would not have applied (if needed), because related property was or might be payable for the benefit of the donor (§69).
Property not substantially a right to income
- Gift of non-voting preference shares would be substantially a gift of income and thus not protected.
See further
- G4. Dividends and distributions (allocation between spouses).
Legislation: ITTOIA s.626;
Cases:
Garnett v. Jones [2007] UKHL 35;
Patmore v. HMRC [2010] UKFTT 334 (TC), Judge Mosedale;
HMRC manuals:
Commentary:
See also:
- Attribution rule applies to gift of property to spouse that is (i) not outright or (ii) substantially a right to income
General rule
- If gift is subject to conditions or there are circumstances in which the property/related property is, will or may become payable/applicable for the benefit of the giver, the outright gift between spouses exclusion does not apply.
- Gift of ordinary shares not substantially a gift of a right to income (Garnett, §30).
Spouse
- Does not include (s.625(4)):
(1) Spouse/civil partner where separated under a court order or separation agreement.
(2) Spouse/civil partner from whom settlor is separate where separation likely to be permanent.
(3) Widow/widower.
(4) Person whom the settlor may marry or become civil partners with.
Legislation: ITTOIA s.626;
Cases: Garnett v. Jones [2007] UKHL 35;
HMRC manuals:
Commentary:
See also:
- Effect of attribution rules applying to a gift
See the notes in i4. Trust income which will apply equivalently where the settlement is a gift rather than a trust.
INCOME TAX: TRANSFER OF ASSETS ABROAD
- Gift to non-resident individual, trust or company as a relevant transfer
General rule
- A relevant transfer is a transfer of assets as a result of which (alone or in combination with associated operations), income becomes payable to a person abroad (s.716).
- Accordingly a transfer of assets to a non-resident trust is a relevant transfer.
- See further i1. Creation and addition to trust.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Gift to UK-resident individual, trust or company who becomes non-resident as a relevant transfer
- "So far as the words used are concerned, it is to be noted that it is sufficient that income becomes payable to the non-resident person 'by virtue or in consequence' of the transfer, either alone or in conjunction with associated operations. This wording is apt to cover the case where there has been a lapse of time between the transfer and the accrual of income to the non-resident person. It is scarcely surprising that the legislature should have contemplated and provided for such a case. Otherwise it would have been too easy, as the facts of Congreve show, for liability under the section to be escaped by means of the relevant transfer being made to a resident person who thereafter became non-resident." (Willoughby at 1001)
Legislation:
Cases:
IRC v. Willoughby [1997] STC 995;
HMRC manuals:
Commentary:
See also:
CAPITAL GAINS TAX
Matching gains to benefits (s.87)
- Person who received benefit from trust making onward gift out of/related to trust benefit: onward gift may be treated as from trust
- See i9. Benefits provided by trust.
- In essence, if the original recipient of a capital payment/benefit was non-UK resident/qualifying new resident and, as part of an arrangement, provided (directly or indirectly) a benefit to another person (potentially before or after the capital payment) who was UK resident, the onward gift can be treated as a capital payment received from the trust for the purpose of the matching rules.
- Onward gift must be within 3 years of the original benefit.
- Gift of shares in company that has received capital payment might give rise to onward gift
- Capital payments to a non-resident close company may be treated as received by the participators (s.96 and see i9. Benefit provided by trust).
- The shares would/could then represent the original benefit such that a gift of the shares could trigger the onward gift rule.
- If the company is UK resident, the capital payment is received by the company itself
INHERITANCE TAX
Immediately chargeable
- Political gifts (immediate charge unless relief applies)
Immediate charge unless relief applies
- In Banks, donations to UKIP were immediately chargeable because the terms of relief in IHTA s.24 were not met for UKIP.
Relief
- No requirement that gifted money be used for any particular purpose (Banks, §28).
- One member of party elected to House of Commons in general election
- This excludes MPs elected in by-elections (Banks, §27).
Legislation:
Cases: Banks v. HMRC [2021] EWCA Civ 1439;
HMRC manuals:
Commentary:
See also:
Potentially exempt
- Value transferred attributable to property becoming comprised on estate of other individual/increasing another individual's estate
By virtue of the transfer
- See, by analogy, the requirement that a person's estate be increased "by" an omission to exercise a right (s.3(3)).
- The increase in value of another person's estate does not need to be immediate as long as there is correlation in substance
"[92] I do not consider there is any mandate to import a temporal requirement into the subsection, requiring an immediate temporal link between the reduction in one estate and the increase in the other. There is a correlation of substance between the reduction and the increase, in that one results from the other, but they need not occur at precisely the same time." (Parry)
- The omission need not be the sole cause of the increase as long as it is the operative cause
"[94] In this case, the omission yielded the death benefits that, in fact, increased the sons’ estates and I do not see the limited discretion of the scheme administrator as breaking the chain connecting the two events. To say that it did would be to adopt a narrow and legalistic approach to section 3(3) which does not seem to me to be appropriate. Putting it another way, the omission was the operative cause of the increase. As Newey LJ observed (para 109, see para 47 above), it may be that the increase in the sons’ estates could also be said to be brought about “by” the exercise of the administrator’s discretion, but that does not preclude a finding that they were increased “by” the omission." (Parry)
Legislation: IHTA s.3(3);
Cases:
HMRC manuals:
Commentary:
See also:
Exclusions
- Situs of assets
- Contractual obligation usually situated in the country in which it can be enforced (HMRC v. Royal Bank of Canada [2025] UKSC 2, §48).
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
Exemptions
- Gift to spouse
Onward gifts by spouse
- Outright gifts OK:
- "Where property given unconditionally by one spouse or civil partner (IHTM11032) to the other is subsequently transferred by the latter to a third party, you cannot use the associated operations provisions to attribute the transfer to the first spouse or civil partner." (IHTM14833).
- Gifts as part of a scheme to make a disposition to a third party may be attacked:
- "However, where the transfer between spouses or civil partners is part of a more complex series of transactions which taken together are the way one of them makes a disposition to a third party, it may be more appropriate to use the associated operations to allocate the transfer(s) to the correct transferor." (IHTM14833)
- See C1. Gifts in general on the scope of the associated operation rules.
Limit on exemption for non-LTR spouse
Legislation:
Cases:
IHTM14833 - Lifetime transfers: associated operations: gifts between spouses or civil partners;
HMRC manuals:
Commentary:
See also:
- Gift to political parties
Not all political parties qualify
- Must have either 2 MPs or 1 MP and 150,000 votes.
- Otherwise gift is immediately chargeable
Legislation: IHTA 1984 s.24
Cases: Banks v. HMRC [2020] UKUT 101 (TCC) (not unlawfully discriminatory);
HMRC manuals:
Commentary:
See also:
Business property relief
- Gift of relievable property followed by associated operation (e.g. sale or conversion to non-relievable property)
- HMRC say that they will consider challenging transfers that qualify for relief where they are followed by operations which result in non-relievable property.
- E.g. gift of agricultural property followed by sale by transferee
- E.g. gift of unquoted shares that become quoted.
- "A point to consider in these situations is whether relief, which is otherwise available, should be challenged by reference to the associated operations provisions." (IHTM14832).
Legislation:
Cases:
HMRC manuals:
IHTM14832 - Lifetime transfers: associated operations: transfers involving relievable property;
Commentary:
See also:
- Value transferred "by" a transfer of value
- See Potentially exempt transfers on the potential scope of the word "by".
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- "Attributable" to value of relevant business property
Attribution is to the value of the property, not the property itself
- Requires an assessment of value of relevant business property before and after the disposition.
- "[23]...the natural reading of the rather convoluted formula in s. 104(1) (whether value transferred by a transfer of value "is attributable to the value of any relevant business property" – rather than simply saying "is attributable to any relevant business property") involves, in the case of a business, direct cross-reference to the simple test in s. 110 to determine whether the value transferred is attributable to the value of the business. The test in s. 110 can readily be applied before and immediately after a disposition, to give a change in value attributable to a business which works in harmony with the basic test in s. 3(1) and which accords with, and closely resembles in the special business context, the general basic test in s. 5 to value a person's estate for the purposes of application of s. 3(1)." (Nelson Dance)
Fall in value of what T started with (not what was transferred)
- The question of whether the transfer of value is attributable to relevant business property is answered by reference to the holding prior to the transfer of value.
- e.g. if T has 55% of the shares and gives away 10%, one does not say that the transfer of value is attributable to the 10% given away and the 45% retained (neither of which, alone, gives control) - see Nelson Dance §28(iii).
- (But note that s.105(1)(b) asks whether control arises from the shares either by themselves or together with other shares owned by the transferor).
May be attributable to business property even if T does not dispose of that property
- Transfer of value may be attributable to relevant business property even if T does not dispose of that property
- E.g. T, owning 100% of a company, causes the company to issue new shares to T's child, thereby reducing the value of T's existing shares.
- The transfer of value is attributable to T's shares, those being the only property in T's estate that diminish in value by virtue of the transfer of value - see Nelson Dance §28(iv).
- Another example is where a company makes a transfer of value which is attributed to the shareholders (s.94) - Nelson Dance §28(v) suggests that the value is also attributable to the shares in T's estate.
Legislation:
Cases:
HMRC v. Trustees of Nelson Dance Family Settlement [2009] EWHC 71 (Ch), Sales J;
HMRC manuals:
Commentary:
See also:
- 2 year ownership requirement to be relevant business property
Basic rule
- Property is not relevant business property in relation to a transfer of value unless it was owned by the transferor throughout the 2 years prior to the transfer (s.106).
Replacement property
- s.107
Corporate reorganisation
- s.107(4)
Successor on death
- Deemed to own from date of death.
- If transferor was spouse - deemed to own for period during which spouse owned it.
s.108
Successive transfers
- s.109
Legislation: IHTA s.106;
Cases:
HMRC manuals:
Commentary:
See also:
- No binding contract for sale at time of transfer of value
General rule
- Property is not relevant business property in relation to a transfer of value if, at the time of the transfer, a binding contract for its sale has been entered into (s.113).
- Only exceptionally do put and call options between shareholders constitute a binding contract (IHTM25292).
Incorporation
- Exclusion does not apply if property is business/interest in a business and the sale is to a company which is to carry on the business.
+ consideration is wholly or mainly shares in or securities of that company (s.113(a)).
Reconstruction or amalgamation
- Exclusion does not apply if the property is shares/securities + sale is made for the purpose of a reconstruction or amalgamation (s.113(b)).
Legislation: IHTA s.113;
Cases:
HMRC manuals:
Commentary:
See also:
- Relief allowance (2026 onwards)
Non-trust charge
- s.104(1A)
Trust charges
- s.104(1B)
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Unincorporated business + assets used for business
General
- Note the 2 year ownership requirement - must be owned by the transferor throughout the 2 years preceding the transfer (see above).
- Draftsman aimed for reasonable degree of simplicity in operation of IHT (Nelson Dance, §23).
- Does not depend on business continuing as a business in hands of transferee (Nelson Dance, §§8, 25).
- Purpose of relief is encouraging transferor to use assets in business (§26).
- No requirement that the property transferred should itself have the character of a business (e.g. disposition of land that formed part of a business for the transferor - Nelson Dance, §25).
- Must contribute to the value of the business up to the point of transfer (see s.110 and Nelson Dance, §25).
- It is the business itself which is treated as the relevant business property (Nelson Dance, §11).
- Rather than the specific property (e.g. trading stock) owned by T + used in the business (Nelson Dance, §11).
- "the focus is on the distinct concept of the business as a going concern, rather than upon the assets which are used in that business (such as stock which is bought in then sold on in the course of a trading business)" (Nelson Dance, §11).
- "use of the general concept of a "business" in s. 105(1)(a) as a form of property distinct from its fluctuating component assets" (§23).
Property treated as relevant business property
- Property consisting of a business or interest in a business (100% relief - s.105(1)(a)).
- Business includes profession or vocation (s.103(3)).
- Must must be carried on for gain (s.103(3)).
- Need not amount to a trade.
- Land, buildings, machinery or plant which, immediately before the transfer, was used wholly or mainly for the purposes of a business carried on by
- a company of which the transferor had control (50% relief - s.105(1)(d)); or
- a partnership of which the transferor was a partner (50% relief - s.105(1)(d)).
- the transferor and which was settled property in which he was beneficially entitled to an IIP (50% relief s.105(1)(e)).
- For land, buildings, machinery, plant not owned by the business owner, the business itself/shares in the company must be relevant business property (s.105(6)).
Value
- For this purpose, value of a business/interest in business = net value (s.110).
- Value of assets used in the business (including goodwill) less aggregate liabilities incurred for the purposes of the business.
Legislation:
Cases:
HMRC v. Trustees of Nelson Dance Family Settlement [2009] EWHC 71 (Ch), Sales J;
HMRC manuals:
Commentary:
See also:
- Quoted shares
- Note the 2 year ownership requirement - must be owned by the transferor throughout the 2 years preceding the transfer (see above).
Types of relevant business property: must give control
- Shares/securities of a company which are quoted + give the transferor control of the company immediately before the transfer (50% relief - s.105(1)(cc)).
- either alone or with other shares owned by the transferor.
- Control - see s.269.
- Quoted means listed on a recognised stock exchange (s.105(1ZA)).
- Does not apply where the shares alone would not have given control + the value of the transfer is reduced under s.176 (s.105(2)).
Assess control based on what T started with
- The question of whether the transfer of value is attributable to relevant business property is answered by reference to the holding prior to the transfer of value.
- e.g. if T has 55% of the shares and gives away 10%, one does not say that the transfer of value is attributable to the 10% given away and the 45% retained (neither of which, alone, gives control) - see Nelson Dance §28(iii).
Legislation:
Cases:
HMRC v. Trustees of Nelson Dance Family Settlement [2009] EWHC 71 (Ch), Sales J;
HMRC manuals:
Commentary:
See also:
- Shares/securities traded on an exchange
- Note the 2 year ownership requirement - must be owned by the transferor throughout the 2 years preceding the transfer (see above).
Types of relevant business property
- Unquoted shares traded on a recognised stock exchange or a non-UK exchange (50% relief - s.105(1)(aa), (ab)).
- Unquoted securities traded on a recognised stock exchange or a non-UK exchange which gave the transferor control immediately before the transfer (50% relief - s.105(1)(aa), (ad)).
-Either alone or with other unquoted shares/securities in the company owned by the transferor.
- Control - see s.269.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Unquoted shares/securities not traded on an exchange
- Note the 2 year ownership requirement - must be owned by the transferor throughout the 2 years preceding the transfer (see above).
Types of relevant business property
- Other unquoted shares in a company (100% relief - s.105(1)(bb)).
- Other unquoted securities of a company which gave the transferor control of the company immediately before the transfer (100% relief - s.105(1)(b)).
- Either alone or together with other securities/shares owned by the transferor.
- Control - see s.269.
- Must not be traded on an exchange (whether or not quoted) (these are "other" unquoted shares/securities).
- No requirement for the shares to carry any particular rights or to have a minimum level of holding.
Attributable to
- Transfer of value may be attributable to relevant business property even if T does not dispose of that property
- E.g. T, owning 100% of a company, causes the company to issue new shares to T's child, thereby reducing the value of T's existing shares.
- The transfer of value is attributable to T's shares, those being the only property in T's estate that diminish in value by virtue of the transfer of value - see Nelson Dance §28(iv).
- Another example is where a company makes a transfer of value which is attributed to the shareholders (s.94) - Nelson Dance §28(v) suggests that the value is also attributable to the shares in T's estate.
Legislation:
Cases:
HMRC v. Trustees of Nelson Dance Family Settlement [2009] EWHC 71 (Ch), Sales J;
HMRC manuals:
Commentary:
See also:
- Need for a business + excluded businesses
- It is implicit (but not explicit) that the company must carry on a business (rather than merely holding assets).
- Must must be carried on for gain (s.103(3)).
- Shares/securities are not relevant business property if the business of the company consists wholly or mainly of (s.105(3)):
- dealing in securities, stock or shares (unless a market maker/discount house in the UK);
- dealing in land or buildings;
- making or holding investments.
- Exclusion does not apply if the business of the company consists wholly or mainly in being a holding company of one or more companies whose business does not fall within the exclusion (s.105(4)).
Holding company
- Companies Act definition.
- References to voting rights mean vote at general meeting on all/substantially all matters (CA 2006, Sch 6).
- Thus right to appoint majority of board not sufficient.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- No winding up order/liquidation
- Shares/securities cannot be relevant business property if it is in winding up/liquidation (s.105(5)).
- Unless it is part of a reconstruction or amalgamation + business is to continue after reconstruction/amalgamation.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Non-qualifying companies in same group
- If
(1) the company is a member of a group;
(2) the business of any other company in the group is an excluded type of business;
(3) the business of that other company is neither that of a holding company nor making land/buildings available to other trading companies in the group;
Then: the value of the shares in the company are taken to be what it would be if that other company was not a member of the group (s.111).
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Excluded assets: value attributable to excluded assets left out of account
Value attributable to excluded assets left out of account
- Not satisfied if used for the purpose of a previous business.
Loans/director loan accounts
- Commercial loans can be investment business assets.
- Interest-free DLA will be excepted asst.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
- Agricultural property relief
- Beware of the effect of giving away farm land on whether any farmhouse can qualify for relief on the basis of whether its character is appropriate etc.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
RESERVATION OF BENEFIT (IHT)
General
- "What, then, is the policy of s.102? It requires people to define precisely the interests which they are giving away and the interests, if any, which they are retaining. Once they have given away an interest they may not receive back any benefits from that interest." (Ingram).
- Query whether gift of property may be made by associated operations, e.g. gift of cash followed by purchase of asset from donor (IHTM14372 and McCutcheon 7-46).
- GWR rules do not apply where the gift is exempt under specified exemptions (s.102(5); IHTM14318; Eversden).
- List does not include annual exemption or normal expenditure out of income (IHTM14319).
- Where the tests are satisfied immediately before death, the gifted property is treated as part of the donor's estate on death (s.102(3)).
- Consider impact of property being in estate on value of other assets in estate.
- Even though property is not really in donor's estate, exemptions might still be available if property belongs to exempt recipient (IHTM14303).
- If the tests were satisfied, but cease to be satisfied prior to death, deemed PET at that time (s.102(4)).
- No exemptions can apply if the reservation ceases during the donor's lifetime, as that is a PET.
- Apart from the above, the property is not treated as being in the donor's estate.
- Held that this exception applies even if the value of the property in the estate is treated as reduced to nil in Elborne UT (§116 - on the facts, the deceased was an IIP beneficiary of a trust that owned that house the deceased had lived in but also owed a debt that reduced that value).
- If multiple properties gifted, but benefit only reserved in one, likely that only that property is subject to GWR (McCutcheon 7-56).
- Tests are applied in the period of 7 years prior to death (or from gift to death, if shorter).
- Potential worst of both worlds if lifetime gift is made (triggering CGT), but benefit reserved such that IHT is payable on death (with no CGT uplift on death).
Legislation: IHTA 1984, s.102;
Cases:
Ingram v. IRC [1999] STC 1234;
IRC v. Eversden [2003] EWCA Civ 668;
Elborne v. HMRC [2025] UKUT 59 (TCC);
HMRC manuals: IHTM14303;
Commentary: McCutcheon 7-12 to 7-14;
See also:
- Excluded property changing status
- Property that was excluded property at the time of the gift may not be at the time of death.
- E.g. if donor subsequently becomes a long-term UK resident by time of death (IHTM47060).
- Same applies to property settled on trust if settlor is long-term UK at time of death.
- Exception to that rule for property that became settled before 30 October 2024 and was excluded property at that time, as long as it remains settled property that is non-UK property.
- Previously the test for settled property was based on the settlor's domicile at the time of creating the settlement (Accuro Trust (Switzerland) SA, §45, but note HMRC's different view).
Legislation:
Cases: Accuro Trust (Switzerland) SA v. HMRC [2025] UKFTT 464 (TC);
HMRC manuals: IHTM47060;
Commentary:
See also:
What is the property gifted?
- "But this approach ignores the fact that ‘property’ in s.102 is not something which has physical existence like a house but a specific interest in that property, a legal construct, which can co-exist with other interests in the same physical object. Section 102 does not therefore prevent people from deriving benefit from the object in which they have given away an interest. It applies only when they derive the benefit from that interest." (Ingram).
- In Munro a gift of land used by a partnership of which the donor was a partner was held to be a gift of the land subject to the rights of the partnership, such that there was no reservation via the partnership. Query whether not dissolving the partnership was a benefit.
- In Perpetual Trustee Co Ltd, a father transferred shares to trustees to hold on trust, essentially, for his son. Privy Council held that the property comprised in the gift was the equitable interest in the shares, which was given to the son.
- "All these decisions proceed upon a common principle, namely, that it is the possession and enjoyment of the actual property given that has to be taken account of, and that if that property is, as it may be, a limited equitable interest or an equitable interest distinct from another such interest which is not given or an interest in property subject to an interest that is retained, it is of no consequence for this purpose that the retained inter- est remains in the beneficial enjoyment of the person who provides the gift." (St Aubyn).
- HMRC accept that carved out rights are not gifted away (IHTM14334, example 9).
- See now, however, FA 1986, Sch 20, para 5 which refers to the property disposed of by way of gift becoming settled property (rather than the gifted property being interests in the settled property) (see further McCutcheon 7-41).
- Right to receive remuneration is not carved out of property gifted (Oakes).
- Gift of property with an immediate leaseback is possibly a gift of the unencumbered freehold (Nichols).
- Transfer of property to nominee who grants lease to donor before freehold is gift is gift of encumbered freehold (Ingram). Query correctness of Nichols.
- Transfer of bank account into joint names with donee a gift of the chose in action representing the whole account (Sillars).
- In relation to a sale at undervalue, HMRC say that the property disposed of by way of gift is the proportion representing the undervalue (IHTM14316).
Legislation:
Cases:
Munro v. Stamp Duties Commissioner [1934] AC 61;
Commissioner of Stamp Duties of New South Wales v. Perpetual Trustee Co Ltd [1943] AC 425;
St Aubyn v. AG [1952] AC 15;
Oakes v. Commissioner of Stamp Duties of New South Wales [1954] AC 57;
Nichols v. IRC [1975] STC 278;
Ingram v. IRC [1999] STC 1234;
Sillars v. IRC [2004] STC (SCD) 900;
HMRC manuals: IHTM14316;
Commentary: McCutcheon 7-41;
See also:
Tracing gifted property
- Question of whether gift subject to a reservation is determined by reference to the property which at the time is treated as comprised in the gift (Sch 20, para 6(2)).
- For gifts other than sterling which do not become settled property, trace into the property received in substitution (Sch 20, para 2).
- Substituted property includes proceeds of redeeming a debt or property acquired by exercising a right (para 2(3)).
- If traced into property acquired by exercising a right (e.g. an option), any consideration given by the donee for the acquisition is deducted when valuing the property comprised in the gift (para 3(1)).
- If gifted interest merges into another interest in the same property, treat donee as still having possession and enjoyment of original property (para 2(5)).
- Bonus issues of securities and rights are treated as an addition to the gift (para 2(6)), but reduced by consideration given unless derived from the company/an associated company (para 3; McCutcheon 7-120).
- If donee dies, trace into the estate (para 4; McCutcheon 7-123).
- For gifts where the property becomes settled property, trace into the assets of the settlement from time to time (para 5(1)).
- Exclude settlement assets that neither represent nor derive from the property originally comprised in the gift (para 5(1)).
- But include property derived directly or indirectly from a loan by the donor to the trustees (para 5(4)) (irrespective of whether it is interest free or not).
- HMRC seem to accept that the outstanding loan is deducted in calculating the amount attributed to the donor, which would avoid double taxation (IHTM14401 albeit see McCutcheon 7-127).
- Exclude loan from donor's spouse/civil partner (IHTM14401).
- Settlement income is included in the tracing unless it arises after the material date (i.e. the date of death or deemed PET) (para 5(5); IHTM14401). McCutcheon notes that this appears to be superfluous (7-124).
- Termination of settlement - see i12. Termination of the trust.
Legislation: FA 1986, Sch 20;
Cases:
HMRC manuals: IHTM14401;
Commentary: McCutcheon 7-112;
See also:
- Gift of cash not traced beyond the cash unless becomes settled property or there are associated operations
- Tracing rules do not apply to absolute gifts of sums of money in Sterling or other currency (Sch 20, para 2(2)(b)).
- Same applies if gift is other property that is subsequently sold for full consideration in cash - cannot trace beyond the cash.
- HMRC watch out for associated operations, e.g. gift of cash used to pay asset from donor (IHTM14372).
- Settlement tracing rules will apply if gift is to settlement or donee settles the money.
- Deemed PET at point at which property ceases to be traced (s.102(4)).
Legislation: FA 1986, Sch 20;
Cases:
HMRC manuals: IHTM14372;
Commentary: McCutcheon 7-117;
See also:
- Transfer by donee for less than full consideration
- If the onward gift is voluntarily made, treat the donee as still having possession and enjoyment of the property (para 2(4)).
- Applies whenever the donee voluntarily divests himself of the gifted property for less than full value consideration.
- E.g. in Battle, two donees each swapped outright ownership of the gifted property (being shares in British Gas) for 49% (each) in a new private company (of which they already owned the other 2%). Held: the 49% shares in the private company owning (only) British Gas shares were worth less than outright ownership of the British Gas shares, such that the donees were deemed to continue owning the British Gas shares.
- Even sale of property to company owned 98% by donee was suggested to give rise to a diminution in value of 2.5% (Battle at 93).
- Does not apply if the gift is back to the donor.
- Query how this works in practice given that the donee will not have possession and enjoyment of the property, and the property may change or cease to exist.
Legislation: FA 1986, Sch 20;
Cases: Battle v. IRC [1980] STC 86;
HMRC manuals:
Commentary: McCutcheon 7-115;
See also:
- Improvement of property
- "A gift of land which the donee subsequently builds on, or a gift of a house subsequently improved at the donee’s expense, will only be a GWR to the extent of the property originally given" (IHTM14373).
Legislation:
Cases:
HMRC manuals: IHTM14373;
Commentary:
See also:
- Loss of property subject to reservation
- Query whether there is a deemed PET. Section 102(4) applies where the property ceases to be property subject to a reservation - does that presume the property continues to exist?
Legislation: FA 1986, s.102(4);
Cases:
HMRC manuals:
Commentary: McCutcheon 7-119;
See also:
(1) Possession and enjoyment of property must be assumed by donee
- Actual possession and enjoyment must be assumed - a right to possession/enjoyment is insufficient (McTaggart Stewart).
- Must be over the whole property - no de minims rule.
- Form of possession and enjoyment depends on property - might be receiving the rent or a share of profits (IHTM14332).
- Joint interest in bank account not enjoyed to the exclusion of donor who was free to draw down the whole funds (Sillars).
- Assess based on property as gifted - no failure to take up possession and enjoyment of loan note because loan note contained terms restricting calling in the debt (Elborne §205).
- HMRC do not argue that this rule is breached where a settlor of a life policy pays (i.e. gifts) future premiums to the policy issuer (IHTM14453).
- Possession and enjoyment by trustees is held solely on behalf of the beneficiaries who are the true donees (Perpetual Trustee Co Ltd; IHTM14394).
- If the trust is discretionary, the trustees hold possession and enjoyment on behalf of the beneficiaries as a group, however, see the different view taken in Lyon, (§33).
- Not necessary for legal title to have been transferred if gift is effective in equity (Re Rose).
- If possession and enjoyment is not taken at the time of the gift, but some time later, there is a PET at that later time.
Legislation:
Cases:
Commissioner of Stamp Duties of New South Wales v. Perpetual Trustee Co Ltd [1943] AC 425;
McTaggart Stewart (1906) 13 SLT 945;
Sillars v. IRC [2004] STC (SCD) 900;
Lyon v. HMRC [2008] STC (SCD) 675;
Elborne v. HMRC [2025] UKUT 59 (TCC);
HMRC manuals: IHTM14394; IHTM14332;
Commentary: McCutcheon 7-57 onwards;
See also:
(2) Property must be enjoyed virtually to the entire exclusion of the donor
- Focus is on the property gifted - no reservation in Elborne where loan note arising from sale of house gifted to trust but house continued to be occupied (under the terms of a separate trust) (§200 see also Pride).
- Legal ownership by the donor as a trustee is consistent with the donor having no enjoyment and possession in his/her capacity as donor (Perpetual Trustee Co Ltd).
- Bare legal ownership where equitable ownership has passed does not give rise to a reservation (Re Rose).
- No benefit reserved where property is gifted subject to existing interests (St Aubyn).
- Benefit reserved where donor granted right to annual sums + right to occupy (Grey (Earl)).
- Right to be considered as a discretionary beneficiary of a trust leading to possibility of benefit is a reservation of a benefit (Eversden HC §17, Lyon §32).
- Does not depend on actual receipt of benefit.
- Query the position if the evidence shows it is virtually certain the donor will not receive anything from the trust (see Buzzoni FTT, §96; Eversden HC, §17).
- Power for trustees to add donor as beneficiary will mean benefit reserved - HMRC say donor must be irrevocably excluded (IHTM14393).
- Occupation/possession under retained joint ownership interest not attributable to property given away (Oakes; Eversden) (but gifts of undivided shares are now dealt with under s.102B, see below).
- Taking a leaseback of gifted land means the property is not enjoyed virtually to the entire exclusion of the donor, however, there is a potential statutory override (Chick, Lang v. Webb).
- "possession and enjoyment by the donee of the property given to him in the manner most advantageous to himself are by no means incompatible with the donor not being excluded from it." (Chick at 448);
- not relevant whether the donor's non-exclusion detracts from the donee's enjoyment (Chick at 449);
- Joining a partnership to which gifted land is contributed can mean not entirely excluded (Chick).
- Query whether presence as a guest amounts to a reservation (AG v. Seccombe but see McCutcheon 7-66).
Legislation:
Cases:
Grey (Earl) v. AG [1900] AC 124;
AG v. Seccombe [1911] 2 KB 688;
Lang v. Webb (1912) 13 CLR 503
Commissioner of Stamp Duties of New South Wales v. Perpetual Trustee Co Ltd [1943] AC 425;
St Aubyn v. AG [1952] AC 15;
Oakes v. Commissioner of Stamp Duties of New South Wales [1954] AC 57;
Chick v Commissioners of Stamp Duties [1958] AC 444;
IRC v. Eversden [2002] EWHC 1360;
IRC v. Eversden [2003] EWCA Civ 668;
Lyon v. HMRC [2008] STC (SCD) 675;
Pride v. HMRC [2023] UKFTT 316 (TC);
Elborne v. HMRC [2025] UKUT 59 (TCC);
HMRC manuals: IHTM14393;
Commentary: McCutcheon 7-62 onwards;
See also:
- Donor paying market value does not prevent a reservation, except for land and chattels
- "Where the question is whether the donor has been entirely excluded from the subject matter of the gift, that is the single fact to be determined. If he has not been so excluded the eye need look no further to see whether his exclusion has been advantageous or otherwise to the donee." (Chick at p 449).
- For land and chattels, occupation or possession is disregarded if it is for full consideration in money or money's worth (FA 1986, Sch 20, para 6(1)(a)).
- Must be full consideration - no partial relief, if consideration is not full.
- No single figure - consider a variety of factors (IHTM14341).
- Full consideration may require a rent review clause in the original contract.
- For chattels, a rental fee of 1% of capital value per year is often accepted by HMRC, subject to proof of commerciality (Chattel Valuation Forum 20 April 2015, §7).
- On the possibility of capitalising the rent see McCutcheon 7-90.
- Consideration could be in kind, rather than money, e.g. carrying out repairs.
- Query whether consideration includes paying for costs such as insurance. Indication that HMRC do not accept this at McCutcheon 7-90.
- Full consideration must continue throughout the period of occupation/possession - HMRC given the example of failing to review the rent such that it ceases to be commercial (IHTM14335).
Legislation: FA 1986, Sch 20, para 6(1)(a);
Cases: Chick v Commissioners of Stamp Duties [1958] AC 444;
HMRC manuals: IHTM14335; IHTM14336; IHTM14341;
Commentary: McCutcheon 7-86;
See also: Chattel Valuation Fiscal Forum 20 April 2015;
- Receiving a loan from gifted money is a gift with a reservation of benefit
- Loan of gifted money or an equivalent amount is a reservation of benefit (IHTM14336).
- Applies even if commercial rate of interest is paid.
- Same applies if money borrowed is income from money gifted to settlement (Permanent Trustee Co).
- Note that the tracing rules do not apply to absolute cash gifts, not becoming settled property (IHTM14372).
Legislation:
Cases: Commissioner of Stamp Duties of New South Wales v. Permanent Trustee Co [1956] AC 512;
HMRC manuals: IHTM14336;
Commentary:
See also:
- Occupation by infirm etc relative
- Occupation of land by the donor is disregarded if it is the result of an unforeseen change of circumstances as a result of which the donor is unable to maintain himself through old age, infirmity or otherwise and represents reasonable provision for the care of the donor by a relative.
- HMRC example is donor developing motor neurone disease 5 years later (IHTM14342).
- Query whether inability to maintain oneself extends to financial inability.
Legislation: FA 1986, Sch 20, para 6(1)(b);
Cases:
HMRC manuals: IHTM14342;
Commentary: McCutcheon 7-91;
See also:
(3) Property must be enjoyed virtually to the entire exclusion of any benefit to the donor by contract or otherwise
- The question is not simply whether the donor obtains a benefit, but whether the donor obtains a benefit that detracts from the donee's enjoyment of the gifted property (Buzzoni, §50).
- If benefit is irrelevant to donee's enjoyment, it does not affect donee's enjoyment (§51, §55).
- Fact that donee receives something/consideration in return for the benefit conferred on the donor does not stop that benefit to the donor affecting the donee's enjoyment (Buzzoni, §52). See further above.
- No effect on donee's enjoyment where donee of an underlease containing covenants was already subject to matching obligations under the licence to underlet with the head landlord (Buzzoni, §56).
- But benefit was reserved in Hood where the donor of a sub-lease imposed (in the sub-lease) positive covenants to pay rent and adhere to obligations under the head lease. The difference appears to be that in Buzzoni, equivalent obligations were already owned by the sub-lessee to the head landlord whereas in Hood they were only owed to the donor and by virtue of the sub-lease (Hood, §§60, 62, 66: "it distinguishes cases of the present type from ones such as Ingram or St Aubyn, where the donor takes advantage of the sophisticated nature of English land or trust law so as to define the property given away in such a manner that any benefits retained by the donor never formed part of the gift at all".).
- In Elborne, benefit of occupying house did not trench upon the donee's enjoyment of promissory note where deceased sold house to trust 1, continued to live there, and gifted the promissory note consideration to Trust 2 (§195).
- The benefit need not come from the gifted property, but must be referable to it (IHTM14333).
- Not satisfied in Elborne UT where the deceased sold her house to a trust and gifted the consideration (a promissory note) to another trust. Held that the benefit was occupation of the house and it did arise from associated operations, but it was distinct from the gift of the promissory note - where the deceased lived was irrelevant to the holder of the Note (§187).
- Benefit may be provided by associated operations (FA 1986, Sch 20, para 6(1)(c)).
- Under estate duty, held to refer to benefits provided under enforceable transactions in AG v. Seccombe (applying ejusdem generis). HMRC say that benefit does not need to be enforceable for IHT purposes (IHTM14333 and see McCutcheon 7-77).
- No such benefit reserved where donee allowed donor to occupy property as guest (AG v. Seccombe), but query correctness now.
- Associated operation rules do not remove need for benefit to be referable to gift (Elborne §187).
- Benefit reserved where donor gift property to a trust but, under the trust, is entitled to remuneration for work done managing trust property (Oakes).
- In practice, HMRC do not apply this rule provided the remuneration is not excessive (IHTM14394).
- Right to require trustees to purchase property from donor at less than market value not a reservation of benefit in Way - power to be exercised as fiduciary.
- Covenant to repair is a benefit where donor gifts land subject to the donee granting an immediate leaseback (donee having the repair obligations) (Nichols; Hood §63).
- Agreement for transferee to bear any IHT is not a reservation of benefit (McCutcheon 7-158).
Legislation: FA 1986, s.102(2)(b); FA 1986, Sch 20, para 6(1)(c);
Cases:
AG v. Seccombe [1911] 2 KB 688;
Commissioner of Stamp Duties of New South Wales v. Way [1952] AC 95;
Oakes v. Commissioner of Stamp Duties of New South Wales [1954] AC 57;
Chick v Commissioners of Stamp Duties [1958] AC 444;
Nichols v. IRC [1975] STC 278;
Buzzoni v. HMRC [2013] EWCA Civ 1684;
Hood v. HMRC [2018] EWCA Civ 2405;
Elborne v. HMRC [2025] UKUT 59 (TCC);
HMRC manuals: IHTM14394; IHTM14333;
Commentary: McCutcheon 7-68 onwards;
See also:
- Meaning of virtually entirely excluded
- HMRC say virtually means "to all intents" or "as good as".
- Applies where the benefit is "insignificant in relation to the gifted property.
- See HMRC's examples relating to land at J7: Occupation and ownership of land.
- HMRC example: use of a gifted motor car to give occasional (2x per month) to the donor is likely sufficient to be excluded whereas using the vehicle every day to take the donor to work is not.
Legislation: FA 1986 s.102;
Cases:
HMRC manuals: IHTM14333; Revenue Interpretation 55
Commentary:
See also:
- Gift of shares where donor has continuing involvement with company
-Continuation of existing reasonable commercial arrangements in the form of remuneration and other benefits for the donor's service in a business does not amount to a reservation, provided the benefits are not affected by the gift (IHTM14337).
- If new remunerative arrangements are made, HMRC will investigate whether it amounts to a reservation of a benefit.
- Similar considerations will apply to dividends.
- HMRC will normally disregard rights that can only be exercised in a fiduciary capacity (IHTM14395).
- This might be relied on where donor gifts shares to trust and exercises voting rights as trustee.
- No reservation if voting rights carved out by pre-gift re-organisation.
- But query whether the reorganisation + gift will fall within IHTA 1984, s.98(3) - deemed transfer of value that is not a PET (see McCutcheon 7-140).
Legislation: IHTA 1984, s.98(3);
Cases:
HMRC manuals: IHTM14337; IHTM14395;
Commentary: McCutcheon 7-134;
See also:
- Gift to spouses/benefits to spouses
- GWR rules do not apply to a gift that is exempt under the inter-spouse exemption.
- Enjoyment of/benefit to spouse does not give rise to reservation of benefit, unless spouse shares benefit (IHTM14338; and re trusts see IHTM14393).
- Query the position if the spouse passes on a benefit or part of it to the donor out of what they receive.
Legislation: FA 1986, s.102(5)(a).
Cases:
HMRC manuals: IHTM14338;
Commentary: McCutcheon 7-07;
See also:
Deemed gifts with reservation of benefit
- Donor able to occupy or enjoy rights in relation to gifted land other than for full consideration
General rule
- If T disposes of land by way of gift and later there is a right, interest or arrangement, to which T/T's spouse is a party, that allows the donor to occupy all or part of the land or enjoy some right in relation to it, gift is treated as subject to a reservation (s.102A).
- In relation to spouse, attention is not on spouse's occupation/enjoyment but whether they have rights etc. that enables the donor (T) to occupy/enjoy.
- Intended to block 'carve-out' schemes by focussing attention on donor's occupation/enjoyment.
Meaning of occupation
- See J7: Ownership and occupation of land;
Exceptions:
- Gift already subject to a reservation under s.102 (s.102C(7)).
- Donor can only occupy/enjoy the right in return for full consideration.
- Right/arrangement does not and cannot prevent the enjoyment of the land to the entire exclusion/virtually entire exclusion of the donor.
- Right/arrangement only entitle the donor to occupy upon the ending of the interest gifted.
- Rights or interests granted/acquired more than 7 years prior to gift. '14-year planning' possible.
- Occupation is covered by the infirm relative exclusion, on which, see above (s.102C(3)).
- Gift itself is covered by one of the exemptions in s.102(5), e.g. spouse exemption (s.102C(2)).
- Gift is of undivided share in land (in which case see s.102B) (s.102C(6)).
7-year let out
- Where the gift is the creation of a lease with a deferred start date (reversionary lease), and the donor owned the interest out of which the lease granted for more than 7 years, HMRC accept that the 7 year let out applies (because the donor occupies under an interest held for more than 7 years), but say POAT will apply (IHTM14360).
- HMRC regard reversionary lease schemes as DOTAS-able.
Tracing
-Gift subsequently traced into something other than the interest in land - apply s.102 to determine if gift is subject to a reservation (s.102C(5)).
Legislation: FA 1986, s.102A; s.102C;
Cases:
HMRC manuals: IHTM14360;
Commentary: McCutcheon 7-103;
See also:
- Gift of undivided share in land followed by occupation by the donor: potential gift with reservation
Scope and general rule
- Where there is a gift of an undivided share in land, only s.102B applies to determine whether there is a GWR (s.102C(6)).
- On its face, s.102B applies to a gift of an undivided share of land, even if the donor does not retain an undivided share post gift.
- Gift of an undivided share of an interest in land is treated as subject to a reservation unless exception applies (s.102B).
Exceptions
- The donor does not occupy the land (receipt of share of rent is OK); or
- The donor occupies the land to the exclusion of the donee and for full consideration; or
- The donor and the donee occupy the land together and there is no connected benefit to the donor (negligible benefits ignored);
- Consider expense sharing arrangements carefully.
- Gift itself is covered by one of the exemptions in s.102(5), e.g. spouse exemption (s.102C(2)).
- Occupation is covered by the infirm relative exclusion, on which, see above (s.102C(3)).
- Note this only allows disregard of occupation by donor, query whether that is sufficient to bring the case within the first exception, above (but see McCutcheon 7-109 suggesting donor must pay fair share of outgoings).
Non-occupation benefits
- If donor does not occupy the land, it appears that they can receive other benefits, such as a share of the rents.
Meaning of occupation
- See J7: Ownership and occupation of land;
Tracing
-Gift subsequently traced into something other than the undivided interest in land - apply s.102 to determine if gift is subject to a reservation (s.102C(5)).
Legislation: FA 1986, s.102B; s.102C;
Cases:
HMRC manuals:
Commentary: McCutcheon 7-107;
See also:
- Life insurance gift where benefits to donee linked to benefits to donor: deemed gift with a reservation of benefit
- If there is a gift of a life insurance policy (on the donor's/spouse's lives) and the benefits to the donee will or may vary by reference to the benefits accruing to the donor or spouse (or civil partner) under that policy or another policy, the gift is subject to a reservation of benefit (Sch 20, para 7).
- Concerned with benefits under an insurance policy not benefits under a trust (IHTM14453). This can be important because para 7 is triggered by benefits to the spouse whereas the general GWR rules are not.
- Not concerned with benefits that vary other than by reference to benefits accruing to the donor (e.g. benefits varying according to survival) (IHTM14453, example 3).
Legislation: FA 1986, Sch 20, para 7;
Cases:
HMRC manuals: IHTM14453;
Commentary: McCutcheon 7-111.
See also:
- Excluded property changing status
- Property that was excluded property at the time of the gift may not be at the time of death.
- E.g. if donor subsequently becomes a long-term UK resident by time of death (IHTM47060).
- Same applies to property settled on trust if settlor is long-term UK at time of death.
- Exception to that rule for property that became settled before 30 October 2024 and was excluded property at that time, as long as it remains settled property that is non-UK property.
- Previously the test for settled property was based on the settlor's domicile at the time of creating the settlement (Accuro Trust (Switzerland) SA, §45, but note HMRC's different view).
Legislation:
Cases: Accuro Trust (Switzerland) SA v. HMRC [2025] UKFTT 464 (TC);
HMRC manuals: IHTM47060;
Commentary:
See also: