Getting gifting right

For many landed estates and agricultural family businesses there have been a lot of transfers of assets in the last few years in preparation for the Agricultural (APR) and Business Property Relief (BPR) cap of £2.5million value for 100% relief. 

Succession planning often involves transferring assets— such as land, properties, shares in farming partnerships or companies—to the next generation or into trust.

While these gifts can be effective for inheritance tax (IHT) planning, the “gift with reservation of benefit” (GWR or GRoB) rules can undermine their intended effect if not carefully managed. 

Broadly, a GWR arises where an individual gives away an asset but continues to enjoy or benefit from it. In such cases, the asset is treated as remaining within the donor’s estate for IHT purposes, regardless of the legal ownership. For rural businesses, this is a common risk due to the intertwined nature of family lifestyles, farming operations, and ownership structures

A classic example is the gifting of a share in the farmhouse to children while the parents continue to occupy it rent free. There is an exemption from the GWR rules for cohabitation, provided not all of the property has been gifted, and costs of running the house are shared. Should the children move out, however, joint occupation ceases and the parents should pay market-rent instead, with rent reviews periodically. 

Similarly, land transfers can create GWR issues. If farmland is gifted to the next generation but the donor continues to farm it “as before,” retaining control or benefiting disproportionately, the arrangement may fall foul of the rules. This is particularly relevant where no formal structure—such as a partnership agreement—exists to demonstrate a genuine commercial arrangement. 

Trusts also require careful handling. If assets are settled into trust but the settlor (or connected parties) continues to benefit—for example, through use of property or receipt of income—GWR rules may apply. This can negate the IHT advantages of the trust entirely

A properly structured farming partnership can help mitigate GWR risks, particularly where all parties (e.g. parents and children) are actively involved in the business. If land or business assets are transferred but then contributed into a partnership, and profits are shared in line with genuine commercial participation, this may support the position that no benefit is reserved. 

• However, the key is substance over form. HMRC will scrutinise whether:
• Profit shares reflect actual contributions (capital, labour, or management);
• The donor’s involvement has reduced appropriately following the gift;
• The arrangement is documented and operated on a commercial footing.

 If parents retain significant control or derive disproportionate benefit, the GWR risk remains.

• Machinery or livestock gifts: If equipment or herds are gifted but the donor continues to use them without appropriate consideration, this may trigger a reservation.
• Diversification assets: Holiday lets or renewable energy installations transferred to children but still enjoyed by the donor can create issues.
• Deferred arrangements: Informal agreements allowing the donor to “use assets when needed” can be problematic, even if seldom exercised

Existing caselaw has set out a guiding test that the donee must enjoy the asset to the entire, or virtually entire, exclusion of the donor. There should be a clear change in behaviours following any gifts, for example change to profit sharing arrangements and drawings

To avoid GWR:

Ensure the donor does not continue to benefit from the gifted asset unless on full commercial terms;

Document arrangements clearly on an arm’s length basis (e.g. partnership agreements, tenancy agreements);

Consider charging market rent where occupation or use continues; 

Align legal ownership with operational reality. 

Given the complexity of agricultural businesses and the value of rural assets regular review is essential. Proper structuring can preserve both family harmony and tax efficiency, while failure to address GWR risks can lead to significant and unexpected IHT exposure.