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Gifts with reservation—basic principles

I3.401 Gifts with reservation—overview

A gift with reservation is essentially a gift of property in which the donor either retains some sort of benefit or enjoyment, or subsequently acquires such. It is irrelevant whether or not the donor is contractually entitled to the continued benefit or enjoyment.

The consequences of a gift with reservation are that the property given under it (or property representing it) will be treated as part of the donor's estate if he dies while the property remains subject to a reservation. If the property ceases to be subject to a reservation within seven years of the donor's death he is treated as having made a transfer of the property at the time when it ceased.

The purpose of the gift with reservation rules is to ensure that taxpayers cannot benefit from property and at the same time give it away. In the tax planning of lifetime dispositions the gift with reservation rules are very often the part of IHT that is the main focus of attention.