UT (Tax & Chancery) UT/2023/000079 UT/2023/000109 - [2025] UKUT 00059 (TCC)

The FTT stated it could see no basis in law for simply disregarding the liability under the Note in the light of its findings of fact to the effect that the parties to the Note intended it to have the legal effects which it purported to have and its conclusion of law to the effect that the Note gave rise to the legal effects which it purported to have (FTT[195]).

The FTT said it was not persuaded that the circumstances were akin to those in Rossendale:

“197.

…(1)  in Rossendale at paragraph [51], Lord Briggs said expressly that the mere fact that a transaction is motivated by a tax avoidance purpose is not sufficient in and of itself to mean that the transaction can be disregarded.  He said:

“We emphasise that this conclusion is not founded on the fact that the defendant’s only motive in granting the lease was to avoid paying business rates, although that was undoubtedly so. If the leases entered into by the defendants had the effect that they were not liable for business rates, their motive for granting the leases is irrelevant. Nor does it illuminate the legal issues to use words such as “artificial” or “contrived” to describe the leases, when it is now accepted that they created genuine legal rights and obligations and were not shams. Our conclusion is based squarely and solely on a purposive interpretation of the relevant statutory provisions and an analysis of the facts in the light of the provisions so construed”;

(2)

it is therefore necessary in this context to ignore the tax avoidance motive which was underlying the scheme and focus instead on whether, on a purposive construction of Section 49, as construed by Mann J in St Barbe Green, the liability under the Note falls outside the language in the section;

(3)

we can see no basis for reaching that conclusion;

(4)

in the first place, there is nothing in the language of Section 49 itself to support the proposition that the liabilities which are to be deducted in valuing the property which is subject to the interest in possession for the purposes of that section are to be disregarded in a case where they have been created for tax avoidance reasons;

(5)

moreover, the scheme of the inheritance tax legislation as a whole is to make specific provision for those circumstances in which deductions for liabilities are to be disallowed because they have been incurred for tax avoidance reasons - for example, Sections 5(4) and 5(5), Section 162(5) of the IHTA and Section 103;

(6)

we therefore infer that there is no reason why Section 49 should be construed on the basis that liabilities which have been incurred for tax avoidance purposes should be disregarded in applying that section and that this is not a case where a clear statutory purpose is being thwarted solely for tax avoidance reasons;

(7)

we also see no relevance in this context in the fact that the liability under the Note was created at the same time as was the interest in possession or that the liability did not fall to be discharged in accordance with its terms until the interest in possession came to an end;

(8)

as regards the first of those things, we can see no reason why the fact that the liability arose simultaneously with the creation of the interest in possession means that the liability falls to be disregarded in valuing that interest in possession and, as regards the second, we do not see why the fact that the liability could not fall due until after the interest in possession came to an end should cause the liability to be ignored.  Clearly, the date on which a liability is due to be repaid and the obligations of the obligor pending that repayment will be matters which need to be taken into account in valuing the liability at the relevant time (see Section 162(2) of the IHTA).  But they are not factors which go to the question of whether the liability should be taken into account at all; and

(9)

we do not see any meaningful parallel between the facts in this case and the facts in Montagu… ”