Buzzoni & ors v HMRCC [2012] UKUT 360 (TCC)

1. MARK BUZZONI (Executor of the estate of Lia Kamhi deceased)







On 5 June 1996 Mrs Kamhi purchased a lease (the headlease) of a flat in Knightsbridge, London. On 21 November 1997 Mrs Kamhi granted an underlease (the underlease) to Ovalap Nominees Ltd. The underlease was granted without rent or premium being payable. On the same day Mrs Kamhi created by deed a settlement. The trustee was Legis Trust Ltd and the trust property was the underlease. Ovalap entered into the underlease as bare nominee for Legis Trust Ltd.

On 24 March 2004 Parkside (Knightsbridge) Residents Ltd then granted Mrs Kamhi a new lease over the flat commencing 1 April 2003. No premium was charged and the rent was one peppercorn if demanded.

Although the underlease did not require Ovalap to pay rent, Ovalap did covenant to pay Mrs Kamhi an amount equal to the amount of service charge that she had to pay under the headlease.

There were many other covenants, as there were in the headlease, such as covenants to keep the property in repair and decorated. There was a general covenant:

‘to observe and perform the covenants and conditions on the lessee’s part contained in the headlease except only the covenant for payment of the rent reserved by the headlease… and to keep the Landlord indemnified against all damages claims costs and expenses in any way relating to the covenants contained in the headlease’.

Mrs Kamhi died on 2 May 2008.

The headlease was valued as at the date of death of Mrs Kamhi to be £50,000. This valuation took into account that the headlease with vacant possession would have been worth in the region of £2,100,000 but because of the underlease the headlease (in reversion) was worth the much lower figure of £50,000.

Notices of Determination were issued to the four appellants on 15 October 2009 that the disposal by way of gift by Mrs Kamhi was subject to a reservation of benefit with the effect that the gifted property should, for inheritance tax purposes, be treated as property to which she was beneficially entitled immediately before her death.

The first appellant was Mrs Kamhi’s executor; the second was the trustee of the settlement into which she gifted the property at issue in this appeal; the third and fourth appellants were her sons who are the beneficiaries of the trust.

The appellant were unsuccessful at the first-tier tribunal and appealed.

Held (dismissing the appeal):

  1. (1) Mrs Kamhi granted a limited property interest in land that was conditional upon fulfillment of the covenants that mirrored the covenants which she owed under the head lease and this benefit is directly referable to the property reserved.
  2. (2) Payment of rent and service charges are not an essential feature of a lease – a lease need only be the grant of exclusive possession for a finite period. There is no need for a lease to have covenants and Mrs Kamhi choose to put them in the underlease.
  3. (3) Mrs Kamhi’s right to discharge of the service charges and other covenants were not granted to her by the settlement – they were a term of the underlease.
  4. (4) There is difference between assigning a lease and granting an underlease. Mrs Kamhi passed her liability to the trustees who had to underwrite her liability.
  5. (5) Although it is for the undertenant to perform the covenants in the headlease to avoid forfeiture Mrs Kamhi could have undertaken the obligations in the headlease.
  6. (6) It was irrelevant that the reservation of benefit may not have diminished the value of the gift.
  7. (7) Very few covenants can be implied into a lease or underlease. The mirror covenants would not necessarily been implied into the underlease if she had not expressly reserved them.
  8. (8) There was a benefit to Mrs Kamhi of transferring to the trustees a liability which she would otherwise have had to pay.
JUDGMENT MRS JUSTICE PROUDMAN DBE: The issue [1] This is an appeal from the decision dated 21 April 2011 of the First-Tier Tribunal (Tax Chamber), comprising Mrs Barbara Mosedale and Mr J Stafford. That hearing was an appeal against notices of determination issued to the appellants on 15 October 2009 that a disposal by way …
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Counsel Details

Mr Robin Mathew QC (New Square Chambers 12 New Square, Lincoln’s Inn, London, WC2A 3SW, tel 020 7419 8000 , fax 020 7419 8050, e-mail instructed by Bracher Rawlins LLP (77 Kingsway, London WC2B 6SR, tel 020 7404 9400, fax 020 7404 9401, e-mail for the appellants.

Mr Matthew Slater (3 Stone Buildings, Lincoln’s Inn, London WC2A 3XL, tel 020 7242 4937, fax 020 7405 3896) instructed by the Solicitor to HM Revenue & Customs (HM Revenue & Customs Solicitor’s Office, South West Wing, Bush House, Strand, London WC2B 4RD) for the respondent.

Cases Referenced

Legislation Referenced

  • Finance Act 1986 Schedules 19, 20
  • Inheritance Act 1984 ss1, 2, 101, 102
  • Tribunals Courts and Enforcement Act 2007 s11