Viscount Hood, Executor of the Estate of Lady Diana Hood v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mrs Justice Rose,Judge Bishopp |
| Neutral Citation | [2017] UKUT 0276 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Date | 07 July 2017 |
| Subject Matter | Tax,7 July 2017 |
| Published date | 07 July 2017 |
INHERITANCE TAX – deceased granted reversionary sub-lease to sons out of her
head leasehold interest – licence to sub-let given by head landlord to deceased –
sub-lease provided for same covenants, including repairing covenants, as in head
lease – whether property disposed of by way of gift was subject to a reservation
under s 102 FA 1986 – application of second limb of s 102(1)(b) – identification of
donated property – whether benefit ‘trenched upon’ donees’ enjoyment of the
donated property - Buzzoni considered
[2017] UKUT 0276 (TCC)
UT/2016/0053
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
VISCOUNT HOOD
EXECUTOR OF THE ESTATE OF LADY DIANA HOOD
Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS
Respondents
TRIBUNAL: MRS JUSTICE ROSE, CHAMBER PRESIDENT
JUDGE BISHOPP PRESIDENT OF THE FIRST-TIER
TRIBUNAL TAX CHAMBER
Sitting in public at The Rolls Building, Fetter Lane, London EC4A 1NL on 15
and 16 May 2017
Simon Taube QC, instructed by Penningtons Manches LLP, for the Appellant
Jonathan Davey QC, instructed by the General Counsel and Solicitor to HM
Revenue and Customs, for the Respondents
CROWN COPYRIGHT © 2017
2
DECISION
1. This is an appeal against the decision of First-tier Tribunal (Judge Berner)
released on 2 February 2016 ([2016] UKFTT 59 (TC) (‘the Decision’). The appeal is 5 brought with the permission of Judge Berner granted on 6 April 2016. It is brought
by Viscount Hood as executor of the estate of his mother the late Lady Diana Hood
who died on 15 March 2008. The estate challenged a notice of determination issued
by HMRC on 13 June 2014 relating to the grant by Lady Hood to her three sons of a
sub-lease of premises at 67 and 67a Chelsea Square London SW3 (‘the Premises’). 10 HMRC had determined that the creation of the sub-lease was a disposal by way of
gift by Lady Hood of property subject to a reservation and that it therefore fell to be
treated as property to which she was beneficially entitled immediately before her
death. If that is right, the estate is liable for inheritance tax (‘IHT’) on the value of
her sons’ sub-leasehold property interest in the Premises because it is deemed to 15 form part of her estate on her death.
2. The facts are not in dispute. The sub-lease granted by Lady Hood to her sons
was granted out of a lease dated 21 September 1979 of which Lady Hood was the
head-lessee and Viscount Chelsea was the head-lessor. Other parties to the head-
lease were Chelsea Land & Investment Company Ltd and Cadogan Holdings 20 Company (‘Cadogan’). The term of the head-lease was due to expire on 25
December 2076.
3. The head-lease contained a covenant by Lady Hood not to assign, transfer or part
with possession of the Premises without the consent in writing of Cadogan, such
consent not to be unreasonably withheld. On 17 June 1997 Cadogan granted a 25 written licence to Lady Hood to enter into a reversionary sub-lease of the Premises
to her three sons. The parties to that licence were Cadogan and Lady Hood. The
proposed sub-lessees were not party to the licence and the sub-lease was not
appended to or referred to in the licence. The sub-lessees did not enter into any
direct covenants with the head-lessor or with Cadogan; no such direct covenants 30 were required under the head-lease. The sub-lease was granted by Lady Hood to her
sons on 19 June 1997. The term of the sub-lease commenced only some 15 years
later, on 25 March 2012 and lasted until 22 December 2076, three days before the
term of the head-lease was due to expire.
4. The sub-lease was made upon and subject to the same terms, covenants, provisos 35 and conditions as were contained in the head-lease. Lady Hood as sub-lessor and her
sons as sub-lessees respectively covenanted to perform and observe those provisions
as if they had been repeated in the sub-lease. The head-lease included the following
covenants which were incorporated mutatis mutandis into the sub-lease (‘the
Company’ being Cadogan Holdings and ‘the Lessor’ being Viscount Chelsea): 40
‘(3) AT the Lessee’s own expense throughout the said term well and
substantially to repair maintain and keep the demised premises and all
erections and buildings that shall for the time being be erected or built
upon the site of the demised premises and all landlord fixtures which at
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