Property swap and tax treatment of peppercorn rents

UK Tax and Working Tax Credit question regarding Peppercorn Rent and Rental Property Swap.

The lady that I employ part time as my bookkeeper and manager has put a proposal to me.
She wishes to live in a particular house in my portfolio that I purchased on a buy-to-let mortgage. It is a big property with a very comfortable living space and incorporates a large room suitable for an office and two external workshops.

She propose that I allow her a rental contract based on a peppercorn rent, in consideration that I take responsibility for her own house and what ever rent I can achieve from it. In addition she also propose to allow me full access and use of the room suitable as an office and the two workshops at my property.

Her property is likely to attract about the same rental value as my one would, her’s is only around 10 years old and is in a very well maintained condition, I don’t envisage too much in the way of abnormal maintenance costs, it is likely to attract a high tenant demand, and should rent very easily.

The gain to me of the use of the office and workshop spaces, offers a huge benefit related directly to my rental portfolio in regards to running and workspace and storage, it is a gain that I could otherwise not afford, it really would be very useful and of high value to me.

My question is what Tax implications might there be on each party, she has no mortgage on her place; she is currently entitled to and receives Working Tax Credits.

1, Would the Taxman view a Peppercorn Rent as some kind of gift to her or similar and tax her on what the full rent would be?

2, As she wont be getting the rent from her place will the taxman view this as some kind of avoidance or otherwise tax her as if she did receive market value rent?
2a, if so would it also be treated as income and like wise affect her current working tax credit entitlement?

3, Would the Taxman still allow me to claim full costs against my property if its let on a peppercorn rent?

3, If I took a long lease on her place and then in turn rented it out, would the income and expenditure to me be treated as normal and just the same as rents and expenses on the properties that I own.

I have heard of some tax relief being offered to landlords for types of free rent, and I know that certain types of employment like farm workers also gain as live-in employees,

Can you see any tax gains or losses to either of us, or see any likely coarse of change to her tax credits?
What guidance can you give to facilitate the best achievement of something along these lines?

If this can go ahead, what kind of legal agreement would we be best us?

Regards Charles F-B

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