The grant by an individual to her sons of a sub-lease of premises out of a head lease interest was held to be a gift with reservation of benefit, and therefore fell to be treated as part of the deceased’s estate on death for inheritance tax purposes.

Background

At her death, the deceased (LH) was entitled to the head lease of premises in London dated 21 September 1979, which expired on 25 December 2076. A sub-lease was granted in June 1997, by which the property was sub-let for a term commencing on 25 March 2012 and expiring on 22 December 2076.

The sub-lease was made upon and subject to the same terms, covenants, provisos, and conditions as were contained in the head lease. LH (as sub-lessor) and her three sons (as sub-lessees) respectively covenanted to perform and observe those provisions as if they had been repeated in the sub-lease. LH died in March 2008.

HM Revenue and Customs issued a notice of determination