Upper Tribunal Tax and Chancery Chamber

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

Fecha: 20-Nov-2024

Relevant Legislation

Relevant Legislation

74.

Section 102 FA 1986 provides as follows:

“102(1) Subject to subsections (5) and (6) below, this section applies where, on or after 18th March 1986, an individual disposes of any property by way of gift and either -
(a)
possession and enjoyment of the property is not bona fide assumed by the donee at or before the beginning of the relevant period; or
(b)
at any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise;
and in this section “the relevant period” means a period ending on the date of the donor's death and beginning seven years before that date or, if it is later, on the date of the gift.
(2)
If and so long as -
(a)
possession and enjoyment of any property is not bona fide assumed as mentioned in subsection (1)(a) above, or
(b)
any property is not enjoyed as mentioned in subsection (1)(b) above,
the property is referred to (in relation to the gift and the donor) as property subject to a reservation.
(3)
If, immediately before the death of the donor, there is any property which, in relation to him, is property subject to a reservation 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.
(4)
If, at a time before the end of the relevant period, any property ceases to be property subject to a reservation, the donor shall be treated for the purposes of the 1984 Act as having at that time made a disposition of the property by a disposition which is a potentially exempt transfer….
(8)
Schedule 20 to this Act has effect for supplementing this section.”

75.

Paragraph 6 of Schedule 20 to the FA 1986 then provides that:

“6(1) In determining whether any property which is disposed of by way of gift is enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise -
(a)
in the case of property which is an interest in land or a chattel, retention or assumption by the donor of actual occupation of the land or actual enjoyment of an incorporeal right over the land, or actual possession of the chattel shall be disregarded if it is for full consideration in money or money's worth;…
(c)
a benefit which the donor obtained by virtue of any associated operations (as defined in section 268 of the 1984 Act) of which the disposal by way of gift is one shall be treated as a benefit to him by contract or otherwise.
(2)
Any question whether any property comprised in a gift was at any time enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him shall (so far as that question depends upon the identity of the property) be determined by reference to the property which is at that time treated as property comprised in the gift...”

76.

Section 268(1) defines associated operations as follows:

“268(1) In this Act “associated operations” means, subject to subsection (2) below, any two or more operations of any kind, being -
(a)
operations which affect the same property, or one of which affects some property and the other or others of which affect property which represents, whether directly or indirectly, that property, or income arising from that property, or any property representing accumulations of any such income, or
(b)
any two operations of which one is effected with reference to the other, or with a view to enabling the other to be effected or facilitating its being effected, and any further operation having a like relation to any of those two, and so on,
whether those operations are effected by the same person or different persons, and whether or not they are simultaneous; and “operation” includes an omission.”

77.

Section 84 and Schedule 15 FA 2004 introduced provisions which imposed a charge to income tax by reference to benefits received in certain circumstances by a former owner of property. These provisions are relevant to the Election Issue, where the key provisions in the present context are:

(1)

paragraph 3 of the schedule, which provides for an individual who continues to occupy land after disposing of it to be liable to income tax on any amount by which the rental value of the land exceeds the payments made by the individual to the owner of the land in respect of his or her occupation of the land;

(2)

paragraph 11(1) of the schedule, which provides that paragraph 3 of the schedule does not apply to a person when his or her estate for the purposes of inheritance tax includes the relevant property;

(3)

paragraph 11(6) of the schedule, which provides that, where the value of the person’s estate for inheritance tax is reduced by an excluded liability affecting any property, “that property is not to be treated for the purposes of [paragraph 11(1)]… as comprised in his estate except to the extent that the value of the property exceeds the amount of the excluded liability”;

(4)

paragraph 11(7) of the schedule, which provides that, for the purposes of paragraph 11(6) of the schedule, a liability is an “excluded liability” if, inter alia, the creation of the liability and any transaction by virtue of which the person’s estate came to include the relevant property were “associated operations”, as defined in Section 268; and

(5)

paragraph 21 of the schedule, which is headed “Election for application of inheritance tax provisions”, and provides as follows:

“21(1) This paragraph applies where -
(a)
a person (“the chargeable person”) would (apart from this paragraph) be chargeable under paragraph 3 (land) or paragraph 6 (chattels) for any year of assessment (“the initial year”) by reference to his enjoyment of any property (“the relevant property”), and
(b)
he has not been chargeable under the paragraph in question in respect of any previous year of assessment by reference to his enjoyment of the relevant property, or of any other property for which the relevant property has been substituted.
(2)
The chargeable person may elect in accordance with paragraph 23 that -
(a)
the preceding provisions of this Schedule shall not apply to him during the initial year and subsequent years of assessment by reference to his enjoyment of the relevant property or of any property which may be substituted for the relevant property, but
(b)
so long as the chargeable person continues to enjoy the relevant property or any property which is substituted for the relevant property –
(i)
the chargeable proportion of the property is to be treated for the purposes of Part 5 of the 1986 Act (in relation to the chargeable person) 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, ...
(ii)
section 102(3) and (4) of that Act shall apply, but only so far as the chargeable person is not beneficially entitled to an interest in possession in the property, and
(iii)
if the chargeable person is beneficially entitled to an interest in possession in the property, sections 53(3) and (4) and 54 of IHTA 1984 (which deal with cases of property reverting to the settlor etc) shall not apply in relation to the chargeable proportion of the property….
(4)
For the purposes of this paragraph a person “enjoys” property if –
(a)
in the case of an interest in land, he occupies the land, and
(b)
in the case of an interest in a chattel, he is in possession of, or has the use of, the chattel.”

78.

Section 102A FA 1986 provides as follows:

“102A(1) This section applies where an individual disposes of an interest in land by way of gift on or after 9th March 1999.
(2)
At any time in the relevant period when the donor or his spouse or civil partner enjoys a significant right or interest, or is party to a significant arrangement, in relation to the land -
(a)
the interest disposed of is referred to (in relation to the gift and the donor) as property subject to a reservation; and
(b)
section 102(3) and (4) above shall apply.
(3)
Subject to subsections (4) and (5) below, a right, interest or arrangement in relation to land is significant for the purposes of subsection (2) above if (and only if) it entitles or enables the donor to occupy all or part of the land, or to enjoy some right in relation to all or part of the land, otherwise than for full consideration in money or money's worth.
(4)
A right, interest or arrangement is not significant for the purposes of subsection (2) above if -
(a)
it does not and cannot prevent the enjoyment of the land to the entire exclusion, or virtually to the entire exclusion, of the donor; or
(b)
it does not entitle or enable the donor to occupy all or part of the land immediately after the disposal, but would do so were it not for the interest disposed of.
(5)
A right or interest is not significant for the purposes of subsection (2) above if it was granted or acquired before the period of seven years ending with the date of the gift….”