IHT Gift With Reservation Calculator — Reservation of Benefit

A gift with reservation (GWR) occurs when you give away an asset but continue to benefit from it — for example, giving your house to your children but continuing to live in it rent-free. Under Finance Act 1986, such gifts are treated as still owned by the donor for IHT purposes, meaning the asset remains in your estate when you die.

Common situations include: giving a home to children but continuing to live there, transferring shares in a family company but retaining control and income, giving artworks or antiques but keeping them in your home, and various IHT avoidance schemes where the donor retains control or benefit. The rules catch both intentional and accidental reservations.

For a GWR, the 7-year rule does not run in the normal way. The gift is only effective for IHT once the reservation is released (you stop benefiting). From the date of reservation release, the normal PET 7-year clock starts. So a gift made in 2005 that you lived in until 2025 would only be a PET from 2025.

Yes. If you pay full open market rent to the person who owns the asset, the reservation is removed. You can no longer be said to be benefiting at the donor's expense. The gift then becomes effective as a PET from the date full rent begins. The rent must genuinely be market value and must actually be paid.

If a gift is a GWR, POAT does not apply — the asset stays in your estate and the IHT treatment applies instead. POAT only applies where the GWR rules don't catch the arrangement. You cannot have both GWR (asset in estate) and POAT (annual income tax charge) on the same asset simultaneously.

If you give away a property, successfully remove yourself from it, and then move back (due to ill health or other reasons), this can restart the GWR rules. The gift with reservation rules look at whether a benefit is enjoyed 'at any time' after the gift. Moving back in — even temporarily — can have significant IHT implications.

Exceptions include: gifts to spouses/civil partners (exempt anyway), gifts where a reservation arises from unforeseen circumstances (e.g., needing to return to care for a sick family member), and certain technical exceptions. The exceptions are narrow — most situations of retained benefit will be caught.

If the asset is sold while you retain the reservation, the proceeds (or replacement asset) may also be caught by GWR. If the asset is sold and the proceeds genuinely pass to the donee without being replaced by another benefit, the GWR may end at the sale. Tax advice is needed before any sale of a GWR asset.

A GWR asset is valued at its market value at the date of death (not the date of the original gift). This can significantly increase the IHT liability compared to if the gift had been effective, particularly for property that has risen in value since the gift was made.

Certain trust arrangements can be structured to avoid GWR, but these are complex and HMRC scrutinises them carefully. Settlor-interested trusts do not avoid GWR. IHT-efficient trust structures for family homes typically require the settlor to give up all benefit. Seek specialist trust and IHT planning advice.

Even with a reservation, certain minor or incidental benefits don't trigger GWR. HMRC guidance describes 'insignificant' benefits that may be ignored. However, the bar is high — regularly staying in a gifted holiday home, for example, is likely to be a reservation even if not a permanent occupation.

HMRC typically discovers GWR through: the estate return (IHT400) filed on death, property registry checks showing ownership changes, prior year gifts declared on self-assessment, and investigations into the estate. The estate's personal representatives are legally required to disclose all GWR assets on the IHT return.