A new ruling means UK households that tried to avoid inheritance tax through controversial “home loan” schemes may be able to knock six-figure sums off their death duty bills.
UK households can save £700,000 on inheritance tax thanks to a landmark legal ruling. A new ruling means UK households that tried to avoid inheritance tax through controversial “home loan” schemes may be able to knock six-figure sums off their death duty bills.
It comes after Leslie Elborne sold her home to a trust in 2003 in exchange for a loan note, which she then gave to a second trust in order to reduce her children’s inheritance tax bill.
When Ms Elborne died in January 2011, more than seven years later, her executors therefore insisted that no tax was due. But HMRC disputed the claim, and in 2023, a first-tier tribunal ruled that the family owed up to 40 per cent tax on their £1.8m property.
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Now, the executors of Ms Elborne’s estate have won an appeal against the decision, meaning they will not have to pay the estimated £700,000 bill. Paul Davies, of law firm Clarke Willmott, 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.”
John Hood, of 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.”
Mr Davies said: “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. But if you are one of those who have stuck with this scheme until now, despite everything thrown at you [by HMRC], there could well be an inheritance tax saving.”
Mr Hood said: “[HMRC] will weigh up how much inheritance tax is at risk if they don’t continue with the appeal. HMRC’s manuals have a whole section on how to unwind the schemes. So if it does not appeal, it is going to have to review this guidance.”
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.”
