Upper Tribunal Tax and Chancery Chamber

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

Fecha: 20-Nov-2024

How the Section 102(3) Issue arises in the Property Issues

How the Section 102(3) Issue arises in the Property Issues

79.

Section 102 sets out (in s102(1) and (2)) the circumstances in which property disposed of is referred to as “property subject to a reservation”. The consequence is then set out in s102(3), and this provides that where, immediately before the death of the donor, there is property subject to a reservation in relation to that donor, then “to the extent that the property would not, apart from this section, form part of the donor’s estate immediately before his death, that property shall be treated for the purposes of the 1984 Act as property to which he was beneficially entitled immediately before his death”.

80.

The Section 102(3) Issue is thus whether the Property would otherwise form part of Mrs Elborne’s estate immediately before her death for this purpose – if it would, then (subject to HMRC’s submissions about the value in the estate) there can be no consequence for inheritance tax purposes even if the Property is “property subject to a reservation”.

81.

The Election Issue and the Section 102A Issue are then potentially relevant in different situations:

(1)

The making of an election treats the chargeable proportion of the property as property subject to a reservation, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property. HMRC submitted that the Election made by Mrs Elborne brings the part of the value of the Property which did not exceed the value of the liability under the Note within the estate. As made clear by Ms Belgrano, the Election Issue is relevant in the event that the Appellants succeed in the context of s102(1) on the disposal of the Property not being by way of gift.

(2)

Section 102A applies where an individual “disposes of an interest in land by way of gift” and may thus apply in circumstances where it has not been established that the requirements of s102(1) are met (albeit that both s102A(1) and s102(1) require that the relevant disposal is “by way of gift”, a condition that Mr Bradley submitted was not met).

82.

In both alternative situations, the consequence is then that s102(3) applies:

(1)

paragraph 21(2)(b)(ii) of Schedule 15 FA 2004 provides that (one consequence of) the election made by the chargeable person is that so long as the chargeable person continues to enjoy the relevant property then the chargeable proportion of the property is to be treated as property subject to a reservation and s102(3) applies (but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property); and

(2)

where s102A applies, the effect (as a result of s102A(2)) is to extend the application of s102(3) (and s102(4)) to the interest in land in question.