ACCA Advanced Taxation (ATX) Practice Exam

Who bears the tax incurred from GWR?

1. The asset's original owner

2. The executor

3. The beneficiary who received the asset

4. The tax authority

The correct answer is: The beneficiary who received the asset

The correct answer identifies that the beneficiary who received the asset bears the tax incurred from the Gifts with Reservation of Benefit (GWR). In situations involving GWR, the tax implications primarily concern the value of the gift as it relates to the estate of the deceased donor. When an individual makes a gift subject to aggregation rules or retains some benefit from the asset, the value of that gift can ultimately be included back into the estate when calculating inheritance tax liabilities. However, once the asset is transferred to the beneficiary, the responsibility for any associated tax on that asset typically falls on them. This means that the beneficiary must report and potentially pay taxes on the value of the asset they received. In addition, the GWR rules are designed to prevent individuals from avoiding tax by giving away their assets while still benefiting from them in some capacity. The tax authority utilizes these rules to ensure that individuals cannot effectively evade tax obligations through gifts that still confer usage or benefit. Understanding this dynamic among the donor, the executor, and the beneficiary is crucial in tax planning and estate management. The executor's role often involves the administration of the estate but does not typically extend to bearing the tax implications on behalf of the beneficiaries, who are directly affected by the valuation of the gifted assets.