Practical points: personal tax April 2025

Inheritance tax

Taxpayer wins appeal on home loan scheme

The Upper Tribunal (UT) found that a promissory note given by the deceased could be deducted from the value of the estate. This meant that the scheme under which she had remained in her home but it had technically been transferred to a trust was valid for inheritance tax (IHT), contrasting with the First-tier Tribunal (FTT) decision.

The taxpayer sold her home to the trustees of a trust called the life settlement. She had an interest in possession (IIP) in this trust. In exchange, she received a promissory note. She then assigned the note to another trust, the family settlement. She was excluded from benefiting under this trust, in which her three children had IIPs. She remained living in the property rent-free until her death.

The intention of the scheme was that the assignment of the note was a potentially exempt transfer, and she did in fact survive more than seven years after that transfer. The estate was calculated with the property being deemed to form part of her estate under her IIP in the life settlement, but with a deduction for the value of the note, which was worth the same as the property had been at the time of transfer.

HMRC’s position was that there should be no deduction from the value of the deceased’s interest in the property for the value of the note, or alternatively that the note should be part of her estate for IHT. The FTT found for HMRC.

The UT has overturned that decision and remade it, finding that the scheme was effective. The point on which the FTT found against the taxpayer was that it did deduct the note from the estate, but found that that value was nil. The UT however found that this debt was incurred by the trust and it should not be treated as incurred by the late taxpayer, so the note had value that was deductible.

HMRC’s cross appeals on points including how the scheme was implemented and anti-avoidance arguments were dismissed.

Executors of Mrs Leslie Vivienne Elborne Deceased & Ors v HMRC [2025] UKUT 59 (TCC)

From Tax Update March 2025, published by Evelyn Partners LLP (now known as S&W Partners LLP)

Residence and domicile

Some income from protected foreign settlement found to be taxable in the UK

In the first case on this point to come to a hearing, the First-tier Tribunal (FTT) has found that offshore income gains (OIGs) and accrued income profits (AIPs) were taxable on the UK-resident settlor of a protected offshore trust.

The taxpayer, who was resident but not domiciled in the UK, had settled four offshore trusts before becoming deemed domiciled in the UK. OIGs and AIPs arose in the trusts after she became deemed domiciled. HMRC believed that these were taxable on her, but she argued that they were protected foreign source income, as they were ‘relevant foreign income’.

The FTT looked at the definitions in the legislation and ultimately reached the conclusion that these were not relevant foreign income. The extra-statutory material did not make it sufficiently clear that that was the intention of Parliament, and the FTT could not go behind this.

Louwman v HMRC [2025] UKFTT 295 (TC)

From Tax Update March 2025, published by Evelyn Partners LLP (now known as S&W Partners LLP)