The decision relates to a complex “home loan” scheme established in 2003.
Although changes to tax law mean that this type of arrangement cannot now be used
in the same way, the judgment may be relevant to families with similar agreements
dating from before those changes.
What was the arrangement?
The case concerned Leslie Elborne, who owned the freehold of her home. In 2003,
she entered into an arrangement intended to remove the property’s value from her
estate for inheritance tax purposes while allowing her to continue living there
rent-free for the remainder of her life.
1
Sale to a settlement
Mrs Elborne sold the property at market value to the trustees of a
settlement she had created. She retained a beneficial life interest,
enabling her to remain in the property.
2
Promissory note issued
Rather than paying cash for the property, the trustees issued a
promissory note for the same value. This created a liability owed by
the settlement.
3
Note transferred
Mrs Elborne gifted the promissory note to the trustees of a second
settlement. She was excluded from benefiting from this settlement,
while her three children held beneficial interests.
4
Seven-year period survived
The transfer was treated as a potentially exempt transfer. Mrs Elborne
survived for more than seven years after making it, before dying in
January 2011.
What was the intended tax outcome?
Because Mrs Elborne retained an interest in possession, the property was treated
as forming part of her estate when she died.
However, the scheme was designed so that the property’s value would be matched
by a corresponding deduction for the liability represented by the outstanding
promissory note.
At the same time, the gift of the note had fallen outside her estate because she
survived the transfer by more than seven years. The combined effect was intended
to leave no inheritance tax payable on the value of the property.
HMRC’s challenge
HMRC challenged the arrangement after Mrs Elborne’s death. In February 2017,
it issued notices of determination to the executors and to the trustees of the
settlements under section 221 of the Inheritance Tax Act 1984.
The executors and trustees appealed. The First-tier Tribunal rejected most of
HMRC’s arguments but dismissed the appeal on one remaining ground.
Both parties subsequently appealed to the Upper Tribunal. In February 2025, the
Upper Tribunal allowed the appeal brought by the executors and trustees and
dismissed HMRC’s cross-appeal.
HMRC then took the case to the Court of Appeal.
The Court of Appeal’s decision
Following a hearing in April, the Court of Appeal’s decision was published in
July 2026. Sir Launcelot Henderson, giving the leading judgment, acknowledged
that the court had reached an unexpected conclusion.
Lady Justice Andrews and Lady Justice Asplin agreed with the judgment. The court
concluded that Mrs Elborne and her advisers had successfully implemented the
scheme and ruled against HMRC.
HMRC has said that it has noted the judgment and is considering its next steps.
Practical points for estate-planning professionals
-
The decision may affect historic estates involving home loan arrangements
entered into before later anti-avoidance legislation.
-
Practitioners should establish exactly when an arrangement was created and
review all trust documents, promissory notes and related records.
-
The judgment turns on the particular legal structure and documentation used;
it should not be applied generally to different arrangements.
-
Specialist legal and tax advice should be obtained wherever a historic home
loan scheme is discovered during estate administration.
-
Practitioners should continue to monitor the case in case HMRC seeks permission
to appeal or issues further guidance.
This article is provided for general information and professional awareness only.
It does not constitute legal or tax advice. The circumstances of every estate are
different, and specialist advice should be obtained where appropriate.