Elborne v HMRC: Court of Appeal holds a 2003 home loan inheritance tax scheme worked

The Court of Appeal has dismissed HMRC's challenge to a home loan inheritance tax scheme, holding that the arrangements entered into by the late Mrs Leslie Vivienne Elborne in 2003 achieved their purpose of removing the value of her home from her taxable estate while allowing her to live there rent-free until her death.

In Elborne v HMRC [2026] EWCA Civ 894, Sir Launcelot Henderson, with whom Lady Justice Asplin and Lady Justice Andrews agreed, considered a familiar structure. Mrs Elborne sold her Rutland property to the trustees of a life settlement in which she held an interest in possession, taking an interest-free promissory note for the £1.8m price. She then gave that note to a second settlement for her three children, from which she was wholly excluded, and continued living in the property until she died in January 2011, more than seven years after the gift. The intention was that the property would fall into her estate through the life interest, but its value would be matched by the outstanding liability under the note, while the gift of the note would escape charge as a potentially exempt transfer she had survived by seven years.

The First-tier Tribunal had rejected all but one of HMRC's arguments, holding that section 103 of the Finance Act 1986 abated the note liability to nil. The Upper Tribunal reversed that finding and dismissed HMRC's cross-appeal on the remaining issues, leaving the taxpayers successful across the board.

On the section 103 point, HMRC contended that the deeming in section 49(1) of the Inheritance Tax Act 1984 treated Mrs Elborne as having personally incurred the note liability. The court rejected that reading. The debt was incurred by the life trustees acting as such, and although Mrs Elborne was one of them, section 49(1) deems the holder of an interest in possession to be beneficially entitled to the underlying trust property, not the sole owner for all purposes whose acts as trustee are attributed to her personally. Applying the principles on statutory deeming in Fowler v HMRC, the judgement found no language justifying that further step, noting that the drafter had shown elsewhere, in section 60 of the Taxation of Chargeable Gains Act 1992, how such attribution is achieved when intended. That conclusion alone defeated section 103, and the court left open the separate question of whether the property was "property derived from the deceased".

The reservation of benefit arguments concerning the note also failed. The note was enjoyed to the entire exclusion of Mrs Elborne because the family settlement excluded her, and her right to remain in the property derived from her life interest under the life settlement rather than from the gift of the note. Drawing on Ingram and Buzzoni, the court held that a reserved benefit must be referable to the property given away and must impinge on the donee's enjoyment of it, neither of which was present.

The court was equally unpersuaded by HMRC's reliance on the Ramsay principle as restated in Rossendale, describing the submission as pitched too generally and untethered from the statutory language, and observing that reading section 49(1) as HMRC urged would absurdly deem Mrs Elborne to owe the debt to herself. The remaining reservation of benefit grounds concerning the property fell away because section 102(3) does not duplicate a charge where the property is already within the estate through section 49(1).

The court noted that the transactions predated both the DOTAS disclosure regime and the general anti-abuse rule introduced in 2013, either of which might have altered the outcome.