A landmark legal ruling could pave the way for people to save hundreds of thousands of pounds on their inheritance tax bills. The landmark comes after Leslie Elborne sold her home to a trust in 2003 in exchange for a loan note, which she subsequently gave to a second trust to lower her family’s inheritance tax bill.
The scheme, known as a “home loan” or “double-trust” arrangement allows those seeking to limit the amount of tax payable on their death by allowing homeowners to transfer their property to a trust which they can then gift to beneficiaries. Gifts are not subject to inheritance tax meaning that if the owner survives more than seven years after placing the home into trust, the recipients of the property are not liable for tax upon receiving the gift. Ms Elborne died in 2011, more than seven years after initiating the scheme, leading her executors to claim that no inheritance tax was due.
HMRC disputed the claim and argued that they were owed around £700,000 in inheritance tax, taking the family to court in 2023, however Ms Elborne’s estate won the appeal meaning they escaped any potential tax bill.
Paul Davies, of law firm Clarke Willmott was involved in establishing the scheme and says that he is “relieved” at the decision.
He said: “These were very popular schemes, but it’s difficult for an individual taxpayer to take on the huge resources of the state and win. HMRC has been able to steamroller people for years.”
Former HMRC tax inspector John Hood who works for accountancy firm Moore Kingston Smith said: “I’ve heard of people using this planning with very modest properties worth £400,000 or £500,000. So it can affect a huge range of people.”
The inheritance tax threshold is £325,000 meaning that 40% is taxed on remainder of the value of an estate. An estate worth £1m therefore would pay 40% of the remaining £675,000.
Inheritance tax makes up less than 1% of HMRC’s income each year although the amount being paid is rising. In January alone, £639m was paid, an increase of 15% on the same month the year before.
In 2023-2024, a total of £7.5bn was paid with the Office for Budget Responsibility estimating that this will rise to £8.3bn this year.
Mr Hood believes that HMRC is almost certain to appeal the decision in the Elborne case after it weighs up how much revenue is at stake if families are able to gift their estates easier.
An HMRC spokesman said: “Home loan schemes are clearly an aggressive form of tax avoidance. We’re disappointed by the tribunal’s decision and are considering an appeal.”
