This can typically be by remaining in the partnership and receiving a profit share in the overall partnership profits, or (in the case of land held outside the partnership) using the land without paying market value for that use.

If a GROB issue applies, the gifted land remains part of the donor's estate for Inheritance Tax (IHT) purposes, defeating the objective of the gift.

The GROB rules are anti-avoidance provisions that treat an asset as still being in the donor's estate if they do not give up all possession and enjoyment of it. In a partnership context, this is a significant risk if the donor remains a partner and the land is used by the partnership business, from which the donor derives an ongoing benefit (e.g. through a share of profits).

There are three primary ways that can help avoid a GROB in this scenario, and ensure the “seven year IHT clock” does start as intended:

1. Donor leaves the partnership: The donor partner relinquishes all involvement and benefit from the partnership and the land.
   
2. Commercial rental arrangement: The donor remains in the partnership but a market-value rent is paid by the partnership to the new owner(s) (donees) for the use of the land, and the donor's share of profits therefore does not reflect a benefit from the gifted land (as partnership profits should reduced from paying the rent).
   
3. Adjusted profit shares: Alternatively, a commensurate change in the partnership sharing ratios, where the donor's share of profits is reduced to reflect that they no longer own the land, can circumvent the GROB rules, provided this adjustment effectively serves as full consideration for the use of the land. This must be carefully documented in the partnership agreement.

As noted above, proper documentation is crucial. The partnership agreement should clearly reflect the changes in land ownership and profit-sharing arrangements.

The GROB rules can be extremely harsh in how they apply. They say that the donor should not receive any benefit other than a negligible one. If they do receive such benefit, the entire asset is still treated as part of the estate, even if an adjustment has been made to reduce (but not eliminate) the benefit.

In some circumstances the scale of that adjustment can be very hard to assess. This is particularly so in current times where often partnerships are making profits from rental activities but only breaking even or making losses on farming. By having a share of a loss on the activities being carried on with the land, is a partner really deriving a benefit?

The reality is that with the APR/BPR changes coming in from April 2026, whereby any value of qualifying property that is in excess of £2.5m will effectively still be taxed at a 20% rate, in most cases it will be safer to make a meaningful adjustment than to do nothing at all to mitigate a GROB argument from HMRC.

This type of scenario is, arguably, another feather in the cap of having a corporate structure. For share gifts in companies, it is much harder to argue a GROB issue, as profit sharing will (ordinarily) follow a straightforward capital ownership split of the shares. Even where it doesn’t (for example where a company uses alphabet shares), it can be easier to track dividends to ensure the donor shareholder hasn’t “borrowed from the reserves pot” which is attributable to the donated shares.

Other land gifting considerations

Although the main purpose of this article is to comment on an IHT considerations of gifting land, there are other issues to consider and deal with, including:

Capital Gains Tax (CGT): Gifting land can trigger a CGT liability for the donor based on the market value at the time of the gift. Hold-over relief for business assets will often be available to defer the gain, provided certain conditions are met.

Stamp Duty Land Tax (SDLT): Gifts between individuals don’t carry a deemed market value rule for SDLT, but different rules apply where land is transferred into (or out of) companies and partnerships. Furthermore, SDLT is chargeable on consideration given, and this can include debt assumed (or deemed to be assumed, in the case of land which is charged against a debt).

Interaction with Pre-Owned Assets Tax (POAT): If an arrangement is made to specifically avoid the GROB rules (e.g., paying market rent), the POAT regime may need to be considered, though GROB typically takes precedence where applicable.

Given the complexity, professional legal and tax advice is essential to structure the gift effectively and avoid unintended tax consequences.