TC09557 - [2025] UKFTT 00750 (TC)

Mr Sykes submitted that the legislation evinces a consistent intention to avoid imposing inheritance tax where the amount in question would also be subject to income tax. He referred us to a number of provisions including IHTA 1984 ss 65(5)(b) and 70(3)(b), which provide that no inheritance tax is charged under those sections in respect of a payment which is income of any person for the purposes of income tax. He also referred us to various extracts from McCutcheon on Inheritance Tax, including paragraph 2.73 which describes statutory amendments having been made to s 94 to remedy “deficiencies”, including an additional inheritance tax charge on gifts that were already dealt with under the existing income tax and corporation tax legislation.

Mr Sykes also drew attention to HMRC’s published guidance in the Shares and Assets Valuation Manual at SVM108270, which is headed “Inheritance Tax: Close Companies – Transfers of Value by Close Companies ss 94 – 97 IHTA 1984”. The text under this heading includes the following:

“In the majority of cases involving close companies payment or the asset transferred is liable to Income Tax or Corporation Tax in the hands of the recipient. Where this is the case, there is no claim to IHT under s 94(2)(a) IHTA 1984.”

Mrs Cook submitted that the “recipient” referred to in the extract quoted above is, in this case, the Trustee and not Ms Tonkin. She also argued that this is only guidance and has no statutory basis before the Tribunal.

We agree with Mr Sykes’ submission that Parliament’s intention in enacting s 94(2)(a) was to avoid the same amount being charged both to inheritance tax and to either income tax or corporation tax. We consider this to be clear from the statutory wording, and it is acknowledged in the passages from McCutcheon and HMRC’s own guidance at SVM108720 referred to above, albeit that we accept neither reference has the force of statute. Mrs Cook did not suggest that s 94(2)(a) had a different purpose.

Having rejected HMRC’s submission that we should not regard Ms Tonkin as the recipient of the transfer of value by the Company, we consider that it is in accordance with the intention of Parliament for us to interpret s 94(2)(a) in a way that prevents Ms Tonkin being subject to both income tax and inheritance tax on the same amount.

In conclusion on this point, we find that s 94(2)(a) applies to prevent an apportionment being made to Ms Tonkin under s 94(1). This finding disposes of the appeal.

We also heard detailed submissions on Ms Tonkin’s second ground of appeal, concerning IHTA 1984, s 12. This provides that a disposition made by any person is not a transfer of value if it is allowable in computing that person's profits or gains for the purposes of income tax or corporation tax (or would be so allowable if those profits or gains were sufficient and fell to be so computed).

For the purposes of this case therefore, the question that arises is whether the transfer of value by the Company (the payment of £740,100) gave rise to an allowable deduction for corporation tax purposes. This in turns leads to the question of whether this expense was incurred wholly and exclusively for the purposes of the Company’s trade. There is also an issue as to whether CTA 2009, ss 1288 and 1290 restrict the availability of any deduction, and what impact this has on the application of IHTA 1984, s 12.

Our finding on s 94(2)(a) means that we do not need to decide this question. We have, however, made relevant findings of fact above so that this issue can be considered should this case proceed further on appeal.

For the reasons we have given, we find that IHTA 1984, s 94(2)(a) applies to prevent an apportionment being made to Ms Tonkin under s 94(1). The appeal is therefore allowed.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.