In Hood v HMRC  UK FTT 059 (TC), Lady Diana Hood had granted a sublease to her three sons (to take effect in 15 years), out of a long lease of which she was the lessee. The sublease was subject to the same terms, covenants, provisos and conditions as were contained in the head lease. Lady Hood, as sublessor, and her sons, as sublessees, respectively covenanted to perform and observe those provisions as if they had been repeated in the sublease.
The First-tier Tribunal (FTT) held that the creation of a sublease where the donor enjoyed the benefit of the sublessees’ covenants was a gift with reservation of benefit under the second limb of FA 1986 s 102(1)(b), as the donee’s enjoyment was not exclusive of any benefit to the donor by contract or otherwise.
The Court of Appeal case Buzzoni and others v HMRC  EWCA Civ 1684, which had similar facts, was considered. In Buzzoni, the court held that there was no reservation of benefit under s 102(1)(b). In that case the benefits the donor derived from the underlease covenants did not affect the donee’s enjoyment of the underlease because the sublessee was party to the headlessor’s licence to sublet. The sublessee had covenanted directly with the headlessor in the licence to observe and perform the covenants.
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