IHTM47060 - Long-term UK residence test: Gifts with reservation of benefit

A gift with reservation (GWR) (IHTM14301)听is where an individual (the donor) makes a gift听and continues to听be able to benefit听from the property given away. Where the donor retains听a benefit at the date of death, the property gifted is deemed听to be part of the donor鈥檚 estate for Inheritance Tax (IHT)听purposes, with provisions to trace into any replacement property.听Any cessation of reservation, within 7 years of death, is treated as a Potentially Exempt Transfer听(IHTM04057)听for IHT purposes.听

If a donor is long-term UK resident (IHTM47000)鈥痑t the time of their death (or when the reservation of benefit ceases), any foreign property given away is not excluded property and is subject to charge.鈥� This will be the case even if the gift was made when the听donor听was听not long-term UK residen迟.鈥�听

Where property is settled on trust and a benefit is reserved,听the property听will be subject to charge if the settlor is听a long-term UK resident at death (or when the reservation of benefit ceases).听 The exception to the rule is where foreign property became comprised听in the settlement before 30 October 2024 and was excluded property (IHTM04251) at that time (IHTM47022).鈥�Where the settlor dies on or after 6 April 2025 and is long-term UK resident听when they听die, the foreign property will be disregarded for the purposes of the GWR charge so long as it has remained 听settled property听throughout听(even if not in the same settlement)听and it is invested outside the UK, is in Authorised听Unit Trusts (AUTs),听or is a share in an Open-Ended Investment Company听(OEIC),听at death (or when the reservation of benefit ceased)听(IHTM14396).听

Any UK property comprised听in the trust will not benefit听from the transitional provision, even if it is later sold and is replaced by foreign property.听

However, excluded property comprised听in a settlement immediately听before 30 October 2024 may听nevertheless be subject to charge under the relevant property regime (IHTM42161)听from 6 April 2025 (IHTM47023).鈥�听

Where there are additions to settlements, or new settlements made, on or after 30 October 2024 the GWR (IHTM14301) provisions will apply in accordance with听the new long-term residence rules (IHTM47020).鈥赌�听

The position before 6 April 2025鈥�听

If the settlor鈥檚 death (or the cessation of reservation of benefit) occurs before 6 April 2025 the test for excluded property (IHTM04251) is the settlor鈥檚 domicile (IHTM13000) at the time property听was听added to the settlemen迟.鈥� Any foreign property in the settlement is not chargeable to Inheritance Tax (IHTM27220) if the settlor was domiciled outside the UK at the time that听property听was听settled.鈥� This rule applies even if the settlor had later acquired听a domicile of choice (IHTM13000) in the UK, or听was deemed听domiciled (IHTM13024) in the UK, at the date of death (or when the reservation of benefit ceases).鈥�听

For property gifted to another individual, foreign property is only out of scope of the GWR provisions if the donor is domiciled outside the UK at death (or when the reservation of benefit ceases).鈥赌�听

Examples

Example 1

Sharon was born in South Africa which is her 鈥榙omicile of origin鈥�.鈥� She has been resident in the UK for the last 15 years.鈥� In October 2010, prior to her move to the UK, she settled foreign shares into a settlemen迟.鈥� Sharon can benefit under the settlement terms.鈥赌�听

  • Sharon made the settlement before she became deemed domiciled, the foreign shares were excluded property when they became comprised听in the settlemen迟.鈥� Any excluded property comprised听in the settlement as at听30 October 2024 will benefit听from the transitional provision and will be disregarded for the purpose of the GWR provisions.鈥赌�听

The foreign shares will therefore not be subject to the gift with reservation provisions even if Sharon is long-term UK resident at the date of her death.鈥� So long as the foreign property in the settlement is听invested outside the UK, within an听AUT, or听is a share in an OEIC听at the date of death (or cessation of the reservation of benefit),听it听will be disregarded for the purpose of the GWR provisions.听

  • If the settlement comprises听UK assets or assets falling within IHTA84/Schedule A1 (IHTM04311)听(overseas property with value attributable to UK residential property) at the date of her death, then such property will not benefit听from this treatmen迟.鈥赌����听

  • The relevant property regime will apply to the settlement from 6 April 2025 whilst Sharon is long-term UK residen迟.鈥�听

Example 2听

Dave is UK domiciled and was resident in the UK until 2020-2021.鈥� He buys a property in Spain and settles this property into trust on 10 November 2022.鈥� Dave retains听a benefit under the terms of the trust.听

  • The property was not excluded property at the time it became comprised听within the settlemen迟.鈥�听

  • The transitional provisions will not apply because the property comprised听within the settlement was not excluded property before 30 October 2024.听

  • Dave will not be long-term UK resident from听6 April 2031 and the foreign settled property in which he has reserved a benefit will be disregarded for GWR purposes after this time.