ACCA Advanced Taxation (ATX) Practice Exam

Who is responsible for paying the tax on a gift with reservation (GWR)?

1. The donor

2. The beneficiary

3. The executor

4. The tax adviser

The correct answer is: The executor

When it comes to gifts with reservation (GWR), the responsibility for paying the tax typically falls on the estate of the donor. This means that the executor, as the representative of the donor’s estate, is tasked with settling any taxes owed at the time of the donor's death. GWR situations arise when a donor gives away an asset but retains some enjoyment or benefit from that asset. This retained benefit means the asset is still regarded as part of the donor's estate for tax purposes, and thus any tax due would be settled by the executor at the time the estate is processed. The donor would generally be responsible for tax obligations during their lifetime, but once they have passed away, it is the executor’s duty to ensure that the estate complies with tax responsibilities, including those arising from gifts made with reservations. Therefore, the executor plays a critical role in the overall management of how tax liabilities are handled when the donor has passed. The beneficiary does not have direct responsibility for paying the tax related to GWR, as they do not assume any financial obligation until after the estate is settled. Similarly, a tax adviser provides guidance on tax matters but does not bear any liability for payment.