TC09557 - [2025] UKFTT 00750 (TC)

The Inheritance Tax Act 1984 (IHTA 1984) provides that inheritance tax is chargeable on transfers of value, other than exempt transfers. Transfers of value are defined in IHTA 1984, s 3(1) as follows:

“(1)

Subject to the following provisions of this Part of this Act, a transfer of value is a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition; and the amount by which it is less is the value transferred by the transfer.”

IHTA 1984, s 3(4) provides:

“(4)

Except as otherwise provided, references in this Act to a transfer of value made, or made by any person, include references to events on the happening of which tax is chargeable as if a transfer of value had been made, or, as the case may be, had been made by that person; and “transferor” shall be construed accordingly.”

IHTA 1984, s 3A(6) provides:

“(6)

Where, under any provision of this Act, tax is in any circumstances to be charged as if a transfer of value had been made, that transfer shall be taken to be a transfer which is not a potentially exempt transfer.”

IHTA 1984, s 94 makes provision for inheritance tax to be charged on participators in respect of transfers of value by close companies. It is common ground in this case that the Company is a close company for these purposes, and that Ms Tonkin, as its sole shareholder, is a participator in that close company. The relevant provisions of s 94 are as follows:

“(1)

Subject to the following provisions of this Part of this Act, where a close company makes a transfer of value, tax shall be charged as if each individual to whom an amount is apportioned under this section had made a transfer of value of such amount as after deduction of tax (if any) would be equal to the amount so apportioned, less the amount (if any) by which the value of his estate is more than it would be but for the company's transfer; but for this purpose his estate shall be treated as not including any rights or interests in the company.

(2)

For the purposes of subsection (1) above the value transferred by the company's transfer of value shall be apportioned among the participators according to their respective rights and interests in the company immediately before the transfer, and any amount so apportioned to a close company shall be further apportioned among its participators, and so on; but—

(a)

so much of that value as is attributable to any payment or transfer of assets to any person which falls to be taken into account in computing that person's profits or gains or losses for the purposes of income tax or corporation tax (or would fall to be so taken into account but for section 1285 of the Corporation Tax Act 2009 (exemption for UK company distributions)) shall not be apportioned…”

The combined effect of these two provisions (IHTA 1984 ss 3A(6) and 94) is that where inheritance tax is charged on a participator under s 94, this is not a potentially exempt transfer (because the charge under s 94 is to be imposed “as if” each relevant individual had made a transfer of value). A charge under s 94 does not, therefore, benefit from the effect of IHTA 1984, s 3A(4) concerning potentially exempt transfers.

IHTA 1984, s 12 is entitled “dispositions allowable for income tax or conferring benefits under pension scheme”. S 12(1) provides:

“(1)

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.”

Section 54 of the Corporation Tax Act 2009 (“CTA 2009”) provides that in calculating the profits of a company’s trade, no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade.

CTA 2009, s 1288 is entitled “unpaid remuneration” and includes the following provisions:

“(1)

This section applies if—

(a)

an amount is charged in respect of employees' remuneration in a company's accounts for a period,

(b)

the amount would, apart from this section, be deductible in calculating income from any source for corporation tax purposes, and

(c)

the remuneration is not paid before the end of the period of 9 months immediately following the end of the period of account.

(2)

If the remuneration is paid after the end of that period of 9 months, the deduction for it is allowed for the period of account in which it is paid.

(3)

No deduction is allowed for the remuneration if it is not paid.”

CTA 2009, s 1290 concerns corporation tax deductions in respect of employee benefit contributions, and relevantly provides as follows:

“(1)

This section applies if, in calculating for corporation tax purposes the profits of a company (“the employer”) of a period of account, a deduction would otherwise be allowable for the period in respect of employee benefit contributions made or to be made (but see subsection (4)).

[…]

(2)

No deduction is allowed for the contributions for the period except so far as—

(a)

qualifying benefits are provided, or qualifying expenses are paid, out of the contributions during the period or within 9 months from the end of it, or

(b)

if the making of the contributions is itself the provision of qualifying benefits, the contributions are made during the period or within 9 months from the end of it.”

CTA 2009, s 1291 has the effect that the circumstances in which an employee benefit contribution is made include where, as a result of any act or omission, there is an increase in the total value of property held in a trust, scheme or other arrangement for the benefit of employees.