I3.752 Reversionary lease schemes
Arrangements using reversionary leases have been considered as a means of making an IHT effective gift of land which the donor wishes to go on occupying for the time being. However, the arrangements are considered to fall foul of the pre-owned assets tax regime.
The arrangements, like those considered in the Ingram case (see I3.751), take advantage of the fact that under the law of England and Wales several distinct interests can exist concurrently in the same property. In summary, the planning involves the grant of a lease at no rent or other consideration (and with no tenant's covenants) for a term of, for example, 999 years to commence at a time which is estimated to occur after the donor's death. The donor may then continue to enjoy the property (as he continues to hold the freehold interest) until the date when the lease is to commence; if he dies in the meantime the value of the property in his estate will be devalued by the existence of the lease, such devaluation increasing the closer his death is to the commencement date of the term of the lease.
The initial gift of the lease is a transfer of value, but the value transferred will normally be small and may therefore fall within the donor's nil rate band. Even if it does not, as it usually constitutes