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

Mr Davey’s submission was that the potency of the approach set out in Rossendale is such that not all trust liabilities are required to be taken into account when applying s49(1) and that, in particular, the liability of the Life Trustees under the Note should not be taken into account. Whilst Mr Davey emphasised that the transactions were part of a scheme, and the evidence of Mr Elborne (one of the Family Trustees but not a Life Trustee) had been that the sole purpose in implementing the scheme had been to remove the value of the Property from his mother’s estate (FTT[18(1)]), it is clear from the approach of the Supreme Court in Rossendale that the principle is one of statutory interpretation and we should start our analysis with the relevant legislation.

We have set out s49(1) and its legislative context throughout this decision (including at [‎18] to [‎23], [‎58(2)] and [‎101]).

Rossendale concerned two schemes which had been entered into by the registered owners of various unoccupied commercial properties to seek to avoid liability for business rates. The speech of Lord Briggs and Lord Leggatt (with whom Lord Reed, Lord Hodge and Lord Kitchin agreed) recorded at [5] that it was common ground that:

Lord Briggs and Lord Leggatt repeatedly emphasised that the Ramsay principle is one of statutory interpretation, and at [15] reiterated that the task of ascertaining whether a particular statutory provision imposes a charge, or grants an exemption from a charge, involves two stages:

“15.

…The first [stage] is to ascertain the class of facts (which may or may not be transactions) intended to be affected by the charge or exemption. This is a process of interpretation of the statutory provision in the light of its purpose. The second is to discover whether the relevant facts fall within that class, in the sense that they “answer to the statutory description” (Barclays Mercantile at para 32). This may be described as a process of application of the statutory provision to the facts.”

The went on at [16] and [17] to state that both of these stages share the need to avoid “tunnel vision” and stated that the facts must be looked at in the round.

In applying the law to the alleged facts of the test cases, their Lordships identified at [47] that in a “normal” case the “person entitled to possession” is the person who as a matter of the law of real property has the immediate legal right to actual physical possession of the relevant property. This accords with the legislative purpose of imposing the liability for business rates on the person who controls whether the property is left unoccupied and on whom the legislation is intended to place an incentive to bring the property back into use for the benefit of the community. However, in the “unusual” circumstances of this case, this would defeat the purpose of the legislation ([48]). The schemes were designed in such a way as to ensure that the SPV to whom a lease was granted had no real or practical control over whether the property was occupied or not, and that such control remained at all times with the landlord. Their Lordships then continued:

“49.

In our view, Parliament cannot sensibly be taken to have intended that “the person entitled to possession” of an unoccupied property on whom the liability for rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates. Still less can Parliament rationally be taken to have intended that an entitlement created with the aim of acting unlawfully and abusing procedures provided by company and insolvency law should fall within the statutory description.

50.

In these circumstances we have no difficulty in concluding that, on the agreed and assumed facts, the SPVs to which leases were granted as part of either of the schemes we have described did not thereby become “entitled to possession” of the demised property for the purposes of the 1988 Act. Rather, throughout the term of the lease that person remained the defendant landlord. This does not involve ignoring the leases, in the way that an intermediate element in a circular transaction might be ignored under the Ramsay doctrine. Rather it involves their close examination in their context, and a conclusion that they did not transfer to the SPVs the entitlement to possession required by the Act as the badge of ownership. If the defendants did not thereby transfer their entitlement to possession it necessarily remained, for the purposes of the Act, with them. The Act requires someone to be identified as the owner. That will be the person who, in any tenurial chain, starting with the freeholder and working downwards, has not disposed of the entitlement to possession of the property in question.

51.

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.”

Mr Elborne’s evidence to the FTT included:

That evidence appears to have been accepted by the FTT. The FTT found that despite the events which have occurred the parties involved in implementing the scheme intended to comply with the terms of the documents implementing the scheme at the time when the scheme documents were executed (FTT[26(1)]) and the true legal effect of the scheme documents was in accordance with their form and they gave rise to the rights and obligations set out in them (FTT[76]). A consequence of this is that the Note gave rise to a debt on the part of the Life Trustees and the Life Trustees still have an outstanding obligation to discharge the Note in accordance with its terms and the Family Trustees still have an entitlement to receive the proceeds of that discharge (FTT[78]).

We do not accept Mr Davey’s submission that these facts represent an unusual case such that the liability represented by the Note should not be deducted when valuing the property to which Mrs Elborne is treated as beneficially entitled. The language and statutory context of s49(1) does not support this submission, and IHTA 1984 includes specific provisions for the disallowance of certain liabilities, eg s103. Moreover, whilst in Rossendale Lord Briggs and Lord Leggatt referred to the SPVs as having no real or practical ability to exercise their legal right to possession, and to that legal right having been conferred for no purpose other than the avoidance of liability for rates, in the present case the FTT made findings as to the Note giving rise to a debt and there was no finding as to the purpose of the Life Trustees in issuing the Note on its particular terms.

The FTT had referenced its “strong suspicion” (at FTT[79]) that had Mrs Elborne died within seven years of making the gift of the Note then HMRC would have sought to claim that that gift had inheritance tax consequences, thereby recognising the validity of the Note.  Whilst we do not place any weight on this, we do recognise that this was also Mr Elborne’s expectation (based on his evidence at FTT[18(1)]).

The FTT’s decision on the Section 49/Rossendale Issue did not involve an error of law and HMRC’s cross-appeal on this issue is dismissed.