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Who bears the inheritance tax on a gift with reservation of benefit?

Posted on Thursday, 15th October 2015 by

A gift with reservation of benefit (GWROB) is where a person has made a gift during their lifetime but has retained some use or enjoyment of the property gifted.  Most commonly, this will be a property that the donor continues to live in.  There are tax rules that apply to treat the estate as if the gift had not been made, such that the value has to be taken into account when calculating any inheritance tax payable on death.  But having calculated that tax, who has to actually pay it?

The liability for inheritance tax (IHT) on a GWROB depends on whether the gift is treated as a potentially exempt transfer (PET) or as part of the death estate.

  1. If the gift is treated as a PET (this is a lifetime gift to another individual) the liability provisions apply as they do to an actual chargeable PET. This means that, in the first instance, the recipient of the asset is liable for the tax.  However, there are then potentially other liabilities should the IHT not be paid.
  1. If the gift is treated as part of the death estate by virtue of retaining an interest in a trust, then the first point of call for the IHT liability would be anyone with an interest in the property

If you are administering an Estate with a Gift With Reservation of Benefit within it, it is recommended that professional advice be taken as it is possible for the Executors, Personal Representative or Trustees to become personally liable for any unpaid Inheritance Tax.

If you found this article helpful we would recommend reading, ‘Trust Changes: Inheritance Tax‘.

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