In The Executors of Mrs Leslie Vivienne Elborne Deceased & Ors v HMRC [2025] UKUT 00059 (TCC), the Upper Tribunal (UT) found that an Inheritance Tax (IHT) home loan scheme was valid. The value of a settled property within a deceased's estate could be reduced for IHT purposes by an associated loan note as it was not a 'debt incurred by' the deceased under anti-avoidance legislation.
In 2003, Mrs Elborne (Mrs E) entered into a home loan scheme, designed to reduce her estate’s value. Under this scheme:
- Mrs E sold her residence to the trustees of a Settlement for the benefit of her children. She Retained an interest in possession, allowing her to live in the property rent-free until her death.
- In consideration for the property, Mrs E received a loan note, which she assigned to the trustees of a second settlement, from which she was excluded from benefiting.
- Mrs E lived in the property until her death in 2011.
- The executors treated the assignment of the loan note as a Potentially Exempt Transfer (PET), with no IHT due since Mrs E survived it by more than seven years.
- As a result of the life interest held by Mrs E, the property was deemed to form part of her Death estate, but with its value reduced by the loan note.
- HMRC issued determination notices, arguing that the loan note liability should be disallowed under s.103 FA 1986, which restricts deductions for certain debts incurred as part of tax avoidance arrangements.
- Mrs E's executors Appealed to the First Tier Tribunal (FTT), which agreed with HMRC. The FTT deemed the loan note of the settlement as having been incurred by the holder of the interest in possession (Mrs E). s.103 FA 1986 precluded the deduction of the loan note from Mrs E’s death estate.
- The executors appealed to the Upper Tribunal (UT).
The UT found that the FTT had made an error of law:
- The key issue was whether the liability under the loan note could be deducted from Mrs E’s estate for IHT purposes.
- The FTT had erred by treating the loan note as a 'debt incurred by' Mrs E, as the liability was incurred by the life interest trustees, not Mrs E personally.
- While Mrs E’s life interest in the trust meant she was beneficially entitled to the property, this did not extend to treating the trust’s liabilities as her own personal debts.
The UT allowed the executors' appeal, ruling that s.103 FA 1986 did not apply to disallow the loan note liability.
The UT also dismissed cross-appeals HMRC had made on five issues that the FTT had found in favour of the executors.
Editorial comments
The UT’s decision confirms that when structured correctly, home loan schemes can achieve the intended IHT savings. However, we expect that HMRC will appeal the UT's decision to the Court of Appeal.
To counter home loan schemes, the Pre-Owned Assets Tax (POAT) was introduced in Finance Act 2004.
Useful guides on this topic
UK Trusts
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Trusts & Tax planning
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Home Loan Scheme
A briefing on Home Loan tax avoidance Schemes (HLS).
IHT: Gifts with reservation
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At a glance: How to calculate Inheritance Tax
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How to appeal an HMRC decision
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IHT: Pre-owned Asset Tax (POAT)
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External links
The Executors of Mrs Leslie Vivienne Elborne Deceased & Ors v HMRC [2025] UKUT 00059 (TCC)
