The executors of a family estate have won an appeal at the Upper Tribunal against inheritance tax (IHT) on the sale of a property that was placed in a trust eight years before the owner of the house died.

HMRC said it was owed £700,000 in IHT from the sale of the £1.8m property, after rejecting the use of an interest in possession trust, known as a ‘home loan scheme’, which left the house to the descendants of Leslie Vivienne Elborne once she died, but permitting her to live in the house until that time.

Business & Accountancy Daily explains that this home loan, or double trust scheme, allowed the property to be sold to a trust to be held for the owner’s benefit, then the trust owes the donor for the purchase, the amount is left outstanding by way of a loan.

This loan is then transferred to another trust until the donor’s family are to inherit the property, but the donor can continue to live in the property, however once they pass away the property will stay in their estate with the value being nullified by the debt.

Paul Davies, a partner in the private capital team at Clarke Willmott, told the press that the decision “marks a significant victory for taxpayers” as the tribunal ruling has prevented HMRC from claiming IHT on properties placed in trusts decades ago.

These types of trusts can no longer be used after the law was changed in 2004. Elborne created this trust on 27 November 2003 and passed away on 6 January 2011, leaving the trust to her three children.

Davies said: “These were very popular schemes, but it’s difficult for an individual taxpayer to take on the huge resources of the state and win. HMRC has been able to steamroller people for years.

“The tribunal’s ruling now sets a precedent for thousands of families who used similar inheritance tax planning strategies.”

Elborne, the original owner of the estate, used the home loan scheme in 2003 to then be gifted to her beneficiaries after her death. Due to Elborne passing away more than seven years after the trust was set up, it meant the gift could be passed on free of IHT.

HMRC rejected this and said it was owed £700,000 in IHT from the sale of the £1.8m property, however, after this second win at the tax tribunal no IHT is owed.

Stephanie Webber, technical writer at Croner-i, said: “HMRC have always been very clear in their view that such schemes are not effective; however, it is only relatively recently that cases have begun to reach the litigation stage and this is the first case to reach the UT and establish a binding precedent (which, certainly at this stage, appears to contradict all of HMRC’s arguments as set out in their guidance).”

An HMRC spokesperson told the press: “We consider home loan schemes to be an aggressive form of tax avoidance. We’re disappointed by the tribunal’s decision, and we are in the process of appealing.”