Benefit is reserved

The deceased gifted a future underlease on a flat to the trustee of a settlement of which the beneficiaries were her sons.

The underlease contained various covenants mirroring those in the head lease: to pay the service charge redecoration expenses and suchlike.

As a result of the disposal the settlement paid the service charge and other fees.

HMRC considered the disposal to be a gift with reservation of benefit as defined in FA 1986 s 102 and Sch 20 and issued determinations for inheritance tax.

The First-tier Tribunal agreed with the taxman that there was a reservation of benefit. The taxpayers appealed.

The Upper Tribunal said the purpose of s 102 was to define the interest the donor was giving away and the interest that was being retained.

Referring to Ingram v CIR [1999] STC 37 the judge noted that having given...