IHTM14316 - Lifetime transfers: gifts with reservation (GWRs): the gift: sales for less than full consideration

A sale for less than full consideration, which is not merely a bad bargain, is a gift, the property disposed of by way of gift being the undervalue. A transaction which looks, for all appearances, to be a sale for less than full consideration may be a gift of the whole property but with a reserved benefit.

Example 1

In 2011 Robert sold a house, then worth £100,000, to his son, James, for £25,000. This is a disposition partly by way of sale and partly by way of gift. Robert dies in 2013.

  • If Robert has been excluded from enjoyment of the property throughout the period, the gift is a PET chargeable on his death. »Ê¹ÚÌåÓýapp loss to his estate is the value of the entirety of the property less the consideration received (£100,000 less £25,000 = £75,000).
  • If Robert was not excluded from enjoyment of the property, for instance because he resided at the property following the disposition, the disposal by way of gift is a GWR. »Ê¹ÚÌåÓýapp value of the property disposed of by way of gift is 75% of the value of the whole property. Thus, if the property is still subject to a reservation immediately before the Robert’s death, 75% of its death value is treated as property to which Robert was beneficially entitled.

Example 2

Ajani sells property to Belinda. »Ê¹ÚÌåÓýapp consideration is an annuity payable by Belinda to Ajani for the remainder of Ajani’s life. Assume that

  • the value of the annuity equals the value of the property.
  • the amount of the annuity equals the net annual value of the property.

IHT consequences

  • On the first assumption, there is no gift and so no gift with reservation (GWR).
  • On the second there is a GWR.

Though at first sight the arrangement seems no more than a sale for inadequate consideration, the true nature of the transaction is that Ajani has made a gift of the house and reserved a benefit in the shape of the annuity.

Top of page

Example 3

Adrian retires from a partnership and voluntarily transfers his capital account equally between the other partners in return for an annuity for life. »Ê¹ÚÌåÓýapp actuarial value of the annuity is worth less than the value of his capital account. This is a GWR.