Reversionary Lease Schemes

Trusts Discussion
1

Do HMRC still accept that reversionary lease schemes entered in to before 8.3.99 are not GWROBs, provided the lease is still reversionary?

Are such schemes subject to POAT?

Simon Northcott

2

Simon

I’d be interested if you found an answer to this. I have a similar query…

Thanks
Michelle Collins
Cozens Hardy LLP

3

There is no GROB for but they are subject to POAT. See IHTM 14314.

That is the basic position for freehold interests with no onerous covenants under the reversionary lease. But as became evident from Viscount Hood v CIR it was much more difficult to run the same arrangement in relation a leasehold interest.

Malcolm Gunn

M B Gunn & Co Ltd

4

HMRC will accept that reversionary leases entered into prior to 9 March 1999 are not gifts with reservation provided the terms of the lease do not contain provisions beneficial to the donor. Reversionary leases entered into on or after 9 March 1999 should also be OK provided the property had been owned for seven years when the reversionary lease was granted. See IHTM44102. Presumably very recent arrangements might fall foul of GAAR but the manuals make no reference to that. POAT is payable on reversionary lease schemes if they escape the reservation of benefit rules.

Paul Davies
Clarke Willmott LLP

5

No conclusions yet, but I will post on tdf once we have some.

Simon Northcott

6

Reversionary leases are specifically referred to in HMRC’s guidance notes on the new DOTAS rules for IHT – under “Examples of arrangements that might be notifiable”.

HMRC’s conclusion is that they are notifiable if no POAT charge is payable. Presumably their logic is that they will get a notification in the transferor’s tax return if POAT is payable.

When isn’t POAT payable? I can think of two examples:

  1. Where the amount on which POAT is chargeable is £5,000 or less – more common than you might expect with a reversionary lease of a home, where the POAT charge is scaled down by reference to the proportion the initial value of the lease bears to the vacant possession of the property;

  2. Where POAT is not payable, for example a property that is let out, and not occupied by the transferor, which falls outside POAT.

I am still advising clients on reversionary leases, saying that there are risks but that they still seem to be accepted as working.

Anthony Nixon
Irwin Mitchell Private Wealth