Upper Tribunal Tax and Chancery Chamber

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

Fecha: 20-Nov-2024

Introduction

Introduction

The Appellants appeal against the decision of the First-Tier Tribunal (Tax Chamber) (the “FTT”) in The Executors of Mrs Leslie Vivienne Elborne and others v HMRC [2023] UKFTT 626 (TC) (the “Decision”) dated 14 June 2023 and oppose HMRC’s cross-appeals. The Decision dismissed the appeals against notices of determination which had been issued by HMRC to the Appellants on 2 February 2017 under s221 Inheritance Tax Act 1984 (“IHTA 1984”).

Mrs Elborne and the trustees of two trusts had, as set out further below in our summary of the Decision, entered into various transactions as part of an arrangement which was known as a “home loan scheme”. Those transactions involved, in outline:

(1)

the disposal by Mrs Elborne of the property in which she lived, the Old Rectory (the “Property”), to the trustees of a settlement in which Mrs Elborne had an interest in possession (the “Life Trustees” and the “Life Settlement” respectively) in exchange for a promissory note (the “Note”) issued by the Life Trustees; and

(2)

the assignment of the Note by Mrs Elborne by way of gift to the trustees of a settlement under which she was excluded from benefitting (the “Family Trustees” and the “Family Settlement” respectively).

Mrs Elborne continued to live in the Property, and died more than seven years after the gift of the Note. The Appellants’ submission, before the FTT and ourselves, is that the inheritance tax consequences are:

(1)

the assignment of the Note to the Family Trustees was a potentially exempt transfer, which was not chargeable as Mrs Elborne survived more than seven years after the assignment; and

(2)

on Mrs Elborne’s death the Property was deemed to form part of her estate (by virtue of her interest in possession in the Life Settlement) but in determining the value of her estate a deduction should be allowed for the value of the liability under the Note.

HMRC pursued a number of challenges before the FTT. The FTT held that a deduction for the liability under the Note was prohibited by s103 Finance Act 1986 (“FA 1986”) (“s103” and the “Section 103 Debt Incurred Issue”), but found in the Appellants’ favour on every other issue. The Appellants appealed on the Section 103 Debt Incurred Issue and HMRC cross-appealed on five of the issues which were decided against them by the FTT. For the reasons set out below, we have allowed the Appellants’ appeal on the Section 103 Debt Incurred Issue and dismissed HMRC’s cross-appeal.

References in this decision in the form FTT[x] are to paragraphs of the Decision.