A landmark legal ruling could save families hundreds of thousands of pounds in inheritance tax.
A controversial ‘home loan’ scheme may be able to protect thousands from death duty bills.
The ruling means those who set up these home loan arrangements decades ago may now be able to reduce their death duty bills significantly. Thousands of families used these controversial schemes in the 1990s and early 2000s at the advice of wealth managers.
HMRC had challenged the legitimacy of these arrangements, but a recent appeal victory has overturned an earlier tribunal decision that would have imposed substantial tax bills.
Leslie Elborne sold her home to a trust in 2003 in exchange for a loan note, which she then gave to a second trust to reduce her children’s inheritance tax bill.
When she died in January 2011, more than seven years after the arrangement, her executors claimed no tax was due.
Leslie Elborne sold her home to a trust in 2003 in exchange for a loan note
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HMRC disputed this claim, and in 2023 a first-tier tribunal ruled the family owed up to 40 per cent tax on their £1.8m property. The executors have now won an appeal against this decision, meaning they will not have to pay the estimated £700,000 bill.
“Home loan” or “double-trust” schemes involved homeowners “loaning” their main residence to a trust, which would later pay for the property. The loan was then passed as a “gift” to a second trust.
As gifts are not subject to inheritance tax if the giver survives for seven years, advisers argued this was a legitimate way to escape inheritance tax.
These arrangements allowed property values to be removed from estates for inheritance tax purposes.
Many families set up these schemes with the help of reputable wealth managers to protect their loved ones from substantial inheritance tax bills.
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Many families set up these schemes with the help of reputable wealth managers to protect their loved ones from substantial inheritance tax bills
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Paul Davies, of law firm Clarke Willmott, who helped establish many of these schemes over 20 years ago, said he was “relieved” to see the decision reversed.
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.”
John Hood, of accountancy firm Moore Kingston Smith and a former HMRC tax inspector, called the move a “significant win” for taxpayers.
He 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.”
These schemes were typically used by people in their 60s, according to Davies, meaning those who set them up would now be well into their 80s. Davies said: “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.”
Inheritance tax receipts hit a record £7.5bn for the 2023-24 tax year
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Inheritance tax receipts hit a record £7.5bn for the 2023-24 tax year. The Office for Budget Responsibility forecasts this will reach £8.3bn, a 10.7 per cent increase year on year.
Chancellor Rachel Reeves’s decision to include unspent private pension wealth in the death duty calculation from April 2027 is expected to saddle 150,000 grieving families with higher tax bills.
Hood believes HMRC will “almost certainly” appeal the Elborne case decision given how many families are affected and the revenue at stake.
Hood added: “[HMRC] will weigh up how much inheritance tax is at risk if they don’t continue with the appeal.”
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.”