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In John Leonard McNeill Shelford as Trustee of the Herbert Life Interest Trust Settlement & Ors v HMRC [2019] TC7549, the First Tier Tribunal found that a home loan scheme was not effective IHT planning. The transactions were void and the assets remained in the estate on death.

Home Loan Schemes were a strategy to save inheritance tax on the passing of a family home.  

In 2002 Mr Herbert set up a discretionary trust for his children in which he had a life interest. He was a trustee together with Mr Shelford.

The FTT dismissed the appeal and found:

Since these conclusions rested on property law only, the judge went on to examine the IHT analysis in the event of an appeal on the basis that there was a valid sale of the house to the trustees.

He concluded that:

This meant the property value at death would be double-counted, to which the judge commented:

“This serves as a warning that the implementation of tax avoidance schemes can sometimes have the consequence of the participants paying more tax than if they had done nothing: if you play with fire, do not be surprised if your fingers are burnt.”

Comment

This was the first home loan scheme case to be heard at the Tribunal. Such schemes have since been stopped by the introduction of POAT, but it is nevertheless an important decision for all cases where no settlement has yet been reached with HMRC. An FTT decision is of course not binding precedent, so we must wait to see if it is appealed to the Upper Tribunal.

Links to our guides:

Home Loan Scheme
A briefing on Home Loan tax avoidance Schemes (HLS)

IHT: Pre-owned asset tax (POAT)
What is the pre-owned asset tax? When does it apply? Are there any exclusions or exemptions?

External link:

John Leonard McNeill Shelford as Trustee of Herbert Life Interest Trust Settlement & Ors v HMRC [2019] TC7549