The England and Wales Court of Appeal has dismissed HMRC’s challenge to a ‘home loan’ scheme used to avoid inheritance tax on a family home in Elborne v HMRC, [2026] EWCA Civ 894.
The scheme adopted by Leslie Elborne (the Deceased) was based on the historic inheritance tax treatment of interests in possession in family settlements.
In 2003, the Deceased sold her home to a trust in which she had a beneficial life interest in possession, in return for a £1.8 million promissory note. She then gifted this note to a second trust in which her children had beneficial interests in possession, and from which she was excluded from all benefit.
The intention was that the house would be deemed to form part of her estate at death because of her interest in possession in the life settlement but that its value would be matched by a corresponding deduction for the outstanding liability due under the promissory note. At the same time, the potentially exempt transfer she had made when the note was assigned to the trustees of the second trust would be exempt from charge, providing she survived the making of the transfer by seven years…. Which she did. Moreover, she was able to continue living in the house rent-free until her death in 2011.T he Deceased’s executors claimed for the Inheritance tax relief created by the loan scheme, but HMRC challenged the deduction. The executors appealed to the First-tier Tax Tribunal but lost. They appealed to the Upper Tax Tribunal, and won, with the tribunal ruling that the trustees’ promissory note was not in law a debt incurred by her. It re-made the decision to allow the executors’ appeal against HMRC’s inheritance tax assessment. HMRC appealed again.
The EWCA has now ruled on the scheme, deciding in the executors’ favour and disallowing HMRC’s assessment.
Sir Launcelot Henderson, giving the judgment, said:
“In simple language, I consider that the scheme worked’. ‘It seems to me that Mrs Elborne and her advisers succeeded in implementing an ingenious scheme which worked because it took advantage of the now historic treatment for inheritance tax purposes of interests in possession in family settlements, and of the opportunity to separate the value of her continued residence in the Property as tenant for life from the matching liability under the Note.”
Moreover, the Deceased had achieved this without falling foul of either the anti-avoidance provisions enacted in Finance Act 1986, or the approach to construction of fiscal legislation in a tax-avoidance context, as developed in the cases of Ramsay, Rossendale and others.
It was also relevant that the transactions took place some time ago, said Sir Henderson. They pre-dated the enactment of legislation requiring tax avoidance schemes to be reported to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) provisions, which date back to the Finance Act 2004, he said. They also occurred before the introduction of a general anti-abuse rule (GAAR) in the Finance Act 2013. If that had been in place at the relevant time, it could in principle have been deployed to counteract home loan schemes of the type used by the Deceased, he said.
It is well worth reading the full report at:
https://www.bailii.org/ew/cases/EWCA/Civ/2026/894.html
Stephen Parnham
27th July 2026