Application of GWROB exception S102B FA 1986

The donor owns an investment property portfolio and wishes to gift a 75% share to the donees, his three adult children. The donor will retain a 25% share and will continue to receive 100% of the rent from the portfolio. None of the properties are occupied by any of the parties.

This arrangement, on the face of it, will be a GWROB.

However, as the gift is of an undivided interest in land and the donor does not occupy the land, it would appear that the exception in S102B FA 1986 will apply, and so the gift will not be considered a GWROB.

Can anyone confirm whether they have dealt with a similar arrangement and, if so, whether the S102B exception was successfully applied?

Emma Jones


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I’ve always thought s 102B(3) is clear on this matter ie no GWROB.

Malcolm Finney

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Hi Emma,

HMRC deem rent paid (exceptions on married couples) to be split based on ownership.

She cannot retain 100% of the income.

Richard Bishop

Richard in my view is not quite correct.

The rules for income tax treatment on income arising from jointly spouse owned property are different from the non-spouse scenario, as here.

There is nothing to prevent (as far as I am aware) a parent who has absolute ownership from transferring say a 75% beneficial interest in the property to an adult child whilst retaining a 25% interest together with 30%/75%/100% as agreed of any rental income.

Rental income is subject to income tax on the part of the person receiving or entitled to the income [ITA 2007 s 271]. Thus, the child could (for example) mandate the income to the parent who would then return the income on his own tax return paying tax thereon as appropriate.

The income tax settlement provisions would not seem to be in point nor the anti-avoidance provisions of ITA 2007 Part 13 Chapter 5A.

I have assumed that the joint ownership does not give rise to a partnership which is normally the case.

Malcolm Finney

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I’d agree with the above, the OP didn’t express that the beneficial ownership would be changed.

Richard Bishop

My reference to “ITA 2007 s 271” in my earlier post should have been to “ITTOIA 2005 s 271”; apologies.

Malcolm Finney

The potential problem with the proposal is CGT. The donor and his children are ‘connected persons’, and a transfer between connected persons is deemed to be a sale and purchase at current open market value. That crystallises any capital gain inherent in the value transferred and, if the gain exceeds the donor’s available CGT annual allowance, he pays real CGT on the deemed gain.

A CGT calculation is needed, so the donor knows the extent of the potential problem. He can then (a.) forget the whole thing, (b.) make the transfer and pay any CGT, (c.) salami slice the properties to the donees year by year, each year transferring just enough to use his annual CGT allowance, or (d.) transfer to trustees, which allows the gain to be held over into the hands of the trustees.

However, a transfer to trustees is not PET, but an immediately-chargeable transfer for IHT, so value transferred may have to be limited to the donor’s available IHT Nil-Rate Band.

Michael Cutler
Colemans Solicitors LLP

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If s102b FA 1986 is used to pass an undivided share and then as mcutler suggests a transfer into trust is used to hold over the gain, doesn’t this create a settlor interested trust so that you can’t use hold over?

Graham Bevan
DSG Chartered Accountants.

Has anyone actually tested this with HMRC? I would be very interested to hear their position as I wonder:

What would be the value of the PET? If it is subject to the Donor’s right to receive income then surely the HMRC wouldn’t accept the value as full market value as it could only be sold subject to the right of the Donor to receive the income.

If the Donor does retain the right to income then will HMRC deem this an IIP and have the value aggregated with the Donor’s Estate for IHT purposes on death?

If it is not an IIP then is it treated as though the Donee has made PETs with every rental payment that passes back to the Donor?

It certainly is an interesting discussion! Would love to hear more thoughts.

Jade Gani
Aston Bond


I concur with the sentiment and comments made by Jade Gani. Another consideration is how does it actually differ from a ‘partnership’. What if A and B buy a property with an equal contribution but agree that A keeps say 75% of the rental income on the basis that A ‘found’ the investment and/or is managing the same.

Haroon Rashid
I Will Solicitors Ltd

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The original post postulates an outright gift of a 75% beneficial interest. This is a PET and a CGT charge arises as holdover relief is not available. The income tax consequences are set out above.

Instead, 75% of property could be settled on an interest in possession trust for the parents as life tenants then going to the child.

Settlement would give rise to a chargeable transfer and a CGT charge arises with no hold over available as settlement would be a settlor interested trust.

No reservation of benefit should arise the settlors having no interest in the trust property; in short the transaction is a carve out or shearing operation.

Malcolm Finney

If the property is sold, and the trust then held cash or shares, POAT would arise, as it would then hold intangible assets.

If a discretionary trust is used, 102B would apply so long only as the original property remained unsold.

As has been pointed out, CGT holdover will not apply, but neither would it apply to an outright gift. The advantage of a trust in which the donor has the right to receive income is that it is a right, rather than the done just continuing to pay the rent to the donor while under no contractual obligation to do so.

Simon Northcott

Like the original poster, I would be interested to know if any member has tested such a scheme, trust or outright gift, with HMRC, and the result, particularly post GAAR.

Simon Northcott

Have been looking through some older posts in relation to gifts of BTL portfolios into trust where the right to income is retained by settlor and settlor is expressly forbidden to have any right to capital. I must admit from reading the posts I am not sure whether the thinking was that this could be successful for IHT planning and would be grateful to hear if others have used such planning successfully.

Sue Howard
Talbots Law

Not sure Sue what precisely you are asking.

FA 1986 s. 102B(3) should allow a gift of rental properties whilst donors retain right to rental income without any reservation of benefit issues. Gift must not be of 100% of the properties.

It might also be possible to settle the properties on life interests for the settlors.

Malcolm Finney

Thank you Malcolm. The concern was the Reservation of Benefit issue. When you say the “whole” must not be settled do you mean the whole capital value of an individual BTL property or group of properties must not be settled? Must the settlor retain an interest in the capital for this not to be a GROB?


Sue Howard
Talbots Law

I was looking for some pointers on this exact same issue, gift a share of say 90% of a rental property to adult children and retain 100% of the rents.

It appears there is no GWROB, even though the donor is retaining an income stream out of kilter with the ownership ratios.
It is a disposal for CGT purposes of 90% of MV.

As this thread is over a year old now has anyone actually done this and had feedback from HMRC?

Also retaining the right to income would have a value for CGT purposes and so the B of A/A+B could be higher than the MV of the whole property.
I would propose the ‘answer’ to this is have no agreement to a right to income, just the owners agree the split of income to be 100% to the previous owner. Of course this puts this income at risk if there is no written right to it.

Any further thoughts?

I have just seen that I failed to respond to your last post, Sue. Not sure how I overlooked it. Apologies.

The gift under s102B FA 1986 is a gift of “an undivided share of an interest in land” ie cannot be a gift of the whole 100% owned interest and thus the donor must retain an interest.

Malcolm Finney

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Responding to Nick’s post.

The A/[A+B] formula is used to ascertain the part of the original base cost of an asset which is attributable to a part disposal. The “B” refers to the MV of the part of the asset retained by the vendor/donor.

I don’t believe “B” can exceed the MV of the whole asset as Nick seems to suggest.

Assume X owns 100% of a property (P). X’s base cost of P is 100,000.
X’s ownership of P includes the right to any rental income which might be generated from P.

X gifts 40% of P to Y but X retains the right to future rental income generated from P’s 40%. Presumably for a 40% share of the property (ignoring discounts for part ownership) would normally be worth 40% of 100,000 to Y but as X retains the right to future rental income Y will only pay (say) 30,000 ie the normal MV of a 40% interest (ie 40,000) is reduced by the present value of a future rental income stream discounted at an appropriate rate (say,10,000 in this example).

For X the capital gain on the sale is 30,000 less an apportionment of X’s original base cost ie [100,000 x [30,000/[30,000 + 70,000]]] ie a capital gain of nil.

“B” the MV of the retained part being 60% of 100,000 plus the PV of the retained future rental income stream on the 40% sold to Y (10,000).

Is not what has happened in the above that X has carved out a right to future rental income arising on Y’s 40% and then gifted the 40% capital value minus rental income rights? In which case no GROB occurs (X not having any right to share in Y’s 40% capital value)? Therefore no need for FA 1986 s102B(3) protection?

Presumably, as an alternative, X could settle 40% of P on trust but retaining a life interest followed by remainder to Y. The trust would be settlor interested and to preclude a GWROB FA 1986 s102B(3) protection would be needed?

Malcolm Finney

Malcolm Finney

It is a shame that the “règle de trois” is not taught clearly and more crucially, understandably in English schools as a mathematical formula and tool. It would save a lot of time.