Benefit is reserved

In 1996 the landlord granted K the deceased a 100-year lease to a property (the headlease).

K then granted an underlease to a nominee company for 86.5 years to begin in 2007. This contained several covenants that reflected those included in the headlease and included a requirement to pay an amount equal to the service charge which K had to pay under the headlease.

She then created a settlement into which she transferred the underlease. Her sons were beneficiaries of the trust.

K died in 2008. The headlease would have been worth £2.1 million but because of the underlease it was worth £50 000. HMRC issued a notice of determination that the underlease was a gift by K of property subject to a reservation of benefit which should be treated as property to which she...