A landmark tribunal ruling has provided relief to families who engaged in historic ‘home loan’ inheritance tax schemes, potentially saving them thousands from tax bills, according to national law firm Clarke Willmott.
‘Home loan’ tax schemes, widely used in the 1990s and early 2000s, involved homeowners transferring their property into a trust in exchange for a loan note, which was then gifted to a second trust.
The intention was to ensure the value of the property was removed from the individual's estate for inheritance tax purposes, as gifts made more than seven years before death are typically exempt.
HMRC sought to challenge these arrangements schemes in recent years, arguing they constituted aggressive tax avoidance.
While additional tax measures introduced in 2003 and 2004 effectively ended the use of such structures, many taxpayers who entered them decades ago have faced uncertainty regarding their estates.
The Elborne v HMRC ruling comes after the estate of Leslie Elborne, who had used a ‘home loan’ scheme in 2003, successfully appealed against an earlier tribunal decision that would have imposed inheritance tax on the £1.8m property.
The victory means the estate will not have to pay an estimated £700,000 tax bill.
The tribunal’s ruling now sets a precedent for thousands of families who used similar inheritance tax planning strategies.
It is reported that HMRC is disappointed by the tribunal’s decision and is considering an appeal.
Paul Davies, a partner in the private capital team at Clarke Willmott, says the decision marks a significant victory for taxpayers.
“These were very popular schemes, but it’s difficult for an individual taxpayer to take on the huge resources of the state and win,” said Paul, who was involved in establishing many of the ‘home loan’ schemes as a junior lawyer more than 20 years ago.
“HMRC has been able to steamroller people for years. Quite a lot of these people would have died and not got the benefits they thought they might, as until now, HMRC was determined to not let them do so."
