A landmark tribunal ruling could provide major inheritance tax relief for families who engaged in historic ‘home loan’ schemes, potentially saving them six-figure sums in tax bills, according to national law firm Clarke Willmott LLP.
The ruling in Elborne v HMRC overturned a previous decision that would have allowed HMRC to claim inheritance tax on properties placed in trust decades ago. The case involved the estate of Leslie Elborne, who used a ‘home loan’ scheme in 2003 to transfer his £1.8 million property into a trust. The successful appeal means the estate will avoid an estimated £700,000 tax bill.
“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 Davies, a partner in Clarke Willmott’s private capital team. “HMRC has been able to steamroller people for years.”
Widely used in the 1990s and early 2000s, ‘home loan’ inheritance tax schemes involved homeowners transferring their property into a trust in exchange for a loan note, which was then gifted to a second trust. The aim was to remove the property’s value from the owner’s estate, as gifts made more than seven years before death are generally exempt from inheritance tax.
However, in recent years, HMRC challenged these arrangements, arguing they constituted aggressive tax avoidance. Although legislative changes in 2003 and 2004 effectively ended the use of such schemes, many families who entered them decades ago have faced uncertainty over their tax liabilities.
The tribunal’s decision sets a precedent that could benefit thousands of families in similar situations. However, HMRC is reportedly disappointed with the ruling and is considering an appeal, meaning the legal battle may not be over.
For now, the verdict provides a significant win for taxpayers, offering potential relief to those who participated in inheritance tax planning strategies that have been under scrutiny for years.
