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Elborne’s Executors v HMRC

This important decision will be of considerable interest not only to IHT specialists but to all who are interested in the boundaries between tax planning and tax avoidance.

It concerns a well-known planning scheme, implemented as long ago as 2003, under which a taxpayer sold her family home to a trust in which she had an interest in possession. The consideration was in the form of a loan note and the taxpayer then transferred the loan note to a family trust from which she was precluded from benefitting.

The intention was that the debt owed on the loan note would be deductible in her estate because the assets and liabilities of an IIP trust are treated as part of a person’s estate. But the gift of the loan note itself would be a PET and there would be no IHT charge if, as here, the donor survived seven years. Thus the overall effect was to allow a person to remain in their home but at the same time removing it