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

Mr Davey, Ms Belgrano and Mr Bradley made submissions on all of the matters which would need to be decided in relation to the Property Issues (albeit that we indicated to HMRC at the hearing that we did not need to hear oral submissions from them in relation to the Section 102A Issue). We summarise only those submissions relevant to the Section 102(3) Issue.

HMRC’s position was that if the Appellants were to persuade the Upper Tribunal to overturn the FTT’s decision on the Section 103 Debt Incurred Issue and/or the FTT’s application of St Barbe Green and thus the FTT’s conclusion at FTT[237] that the liability under the Note constituted a debt deemed to be incurred by Mrs Elborne it would follow that, as the FTT put it, “the answer in relation to the Section 102 Property issue, the Section 102A issue … would be very different” (FTT[228]). HMRC’s position was that it was key to the FTT’s conclusion on s102(3) that its analysis was that the Property did form part of the deceased’s estate by virtue of s49(1) (and it was only the FTT’s conclusion on this issue that caused HMRC to lose on the Section 102 Property Issue).

The FTT’s conclusion in FTT[146] referred both to the decision in St Barbe Green and to the provisions of Schedule 15. At the hearing, Mr Davey addressed the former and Ms Belgrano the latter.

Mr Davey submitted that the FTT was referring at FTT[146] to the fact that on its analysis of s49(1) and the decision in St Barbe Green, the whole of the settled property, including the trust liabilities, is brought within the estate, therefore, when looking at this through the lens of s102(3), the Property would, apart from that section, form part of the estate immediately before death.

In HMRC’s written submissions Mr Davey had submitted that if the initial step in that reasoning, ie that s49(1) treats the whole of the settled property as within the estate, is wrong, eg if s49(1) only brings a net value of the settled property into the estate, then that throws open the analysis in relation to s102(3), as the Property would not relevantly form part of Mrs Elborne’s estate.

Mr Davey also submitted that if we were to agree with the FTT that s49(1) has the effect of bringing the Property within the estate, but disagree with the FTT’s overall conclusion on the Section 103 Debt Incurred Issue, eg because we accept the Appellants’ contention that the s49(1) deeming does not extend to treating Mrs Elborne as having incurred the liability under the Note, and/or that the s49(1) deeming does not apply for the purposes of considering s103, then HMRC’s position was that the requirement that “the property would not, apart from this section, form part of the donor’s estate immediately before his death” was still met. This is on the following basis:

For this reason, HMRC did not agree with the Appellants’ submission (which had been made in its written submissions) that if we agreed with the FTT that the Property was already part of Mrs Elborne’s estate by virtue of s49(1) then this would be determinative of the Section 102(3) Issue.

Ms Belgrano dealt with the relevant provisions of Schedule 15, in particular paragraphs 11 and 21, in the context of her submissions on the Election Issue. Ms Belgrano submitted that whilst paragraph 11(6) provides that the relevant property was not to be treated as comprised in the relevant person’s estate “for the purposes of sub-paragraph 11(1) or 11(2)”, that deeming necessarily extended throughout Schedule 15, and should be applied for the purposes of paragraph 21. The consequence of this, Ms Belgrano submitted, was that paragraph 21(2)(b)(ii) applied to the Property to the extent of the value of the liability under the Note, and therefore the Election had the effect of bringing the Property to that extent within the ambit of s102(3). Ms Belgrano submitted that the FTT’s approach had deprived this deeming of proper effect.

Ms Belgrano then referred to the FTT’s reasoning at FTT[146] where the FTT stated, without, she submitted, further explanation, that “That is clear from the judgment of Mann J in St Barbe Green and it is supported by the way in which paragraphs 11(1), 11(6) and 11(7) of Schedule 15 to the FA 2004 are worded”. She submitted that, to the extent that the FTT had used these sub-paragraphs of paragraph 11 to construe earlier legislation in a different Act, that was an error of law. Ms Belgrano referred to RFC 1012 plc v Advocate General for Scotland [2017] UKSC 45 (“Rangers”) and Altrad Services Ltd v HMRC [2024] EWCA Civ 720 (“Altrad”) in support of this submission.

Mr Bradley submitted that the Property did form part of Mrs Elborne’s estate for this purpose, submitting that this is exactly what s49(1) says. He submitted that the difficulty for HMRC was not whether the Property was in Mrs Elborne’s estate but the value of the settled property that was taken into account. He submitted that s102(3) cannot assist HMRC in this regard – all it can do is put the Property back into the estate, but it was already there.

Responding to Ms Belgrano’s submissions on paragraph 11(6), Mr Bradley submitted that paragraph 11(6) was intended to deal with the situation where property is within the estate but the value at which the property was brought into account was reduced by an excluded liability. He submitted that this argument “weakly supports” the FTT’s conclusion in FTT[146], but that the FTT’s decision was in any event based on its interpretation of s49(1) and St Barbe Green.