Upper Tribunal confirms corporate settlors can face secondary liability under Lexgreen Services v HMRC

The Upper Tribunal (Tax and Chancery Chamber) has dismissed an appeal by Lexgreen Services Limited, confirming that a company acting as settlor of a trust can be secondarily liable for inheritance tax under section 201(1)(d) of the Inheritance Tax Act 1984, where trustees are non-UK resident and tax remains unpaid.

The case, heard by Judge Thomas Scott and Judge Vimal Tilakapala, concerned a ten-year periodic charge arising on a trust established by Lexgreen in 2005, with trustees resident in Jersey. HMRC issued a notice of determination in 2020 holding Lexgreen liable for the charge after it went unpaid by the trustees. The First-tier Tribunal dismissed Lexgreen's initial appeal in August 2025, prompting the further appeal to the Upper Tribunal.

Before the FTT, Lexgreen had been represented by leading counsel. On appeal, the company was represented by its director, Mikael Armstrong, who advanced a new argument not previously raised: that section 2(1) of the IHTA restricts chargeable transfers to those made by individuals, meaning no company could ever incur inheritance tax liability absent express statutory provision.

The tribunal rejected this argument, finding that section 2(3) operates to bring occasions of charge under the special charging provisions, including the periodic charge in section 64, within the scope of "chargeable transfers" regardless of the section 2(1) individual requirement. The judges held that section 2(1) applies only to the main charging provisions, and has no bearing on liability arising under Chapter III of Part III, which governs discretionary trusts and periodic charges.

The tribunal then turned to Lexgreen's alternative argument, echoing that made before the FTT, that the reference to "life of the settlor" in section 201(1)(d) necessarily excludes corporate settlors. The judges accepted that the word "settlor" under section 44(1) extends to companies via the Interpretation Act 1978, and considered whether the specific phrase "during the life of the settlor" displaced that broader meaning.

Drawing on dictionary definitions and case law, including references to the "life of a company" in In re A Company (No 00314 of 1989) and In re Peveril Gold Mines Ltd, the tribunal found the ordinary meaning of "life" capable of applying to either natural or corporate persons, depending on context. It concluded that the purpose of section 201(1)(d), read alongside section 204(6), is to provide HMRC with a fallback enforcement mechanism where trustees fail to pay tax and are outside UK jurisdiction. Restricting this secondary recovery mechanism to individual settlors, the tribunal reasoned, would undermine that purpose without any clear indication that Parliament intended such a limitation.

The tribunal also dismissed two subsidiary arguments. It rejected the suggestion that the close company provisions in Part IV of the IHTA indicated that explicit drafting was required wherever companies were to be caught by inheritance tax, finding those provisions addressed a different problem. It also declined to treat a 2025 amendment to section 272, clarifying that a corporate settlor's "life" refers to its continued existence, as evidence that companies were previously excluded, accepting HMRC's position that the amendment merely clarified existing law.

The decision provides clarity on the scope of secondary liability provisions affecting corporate settlors of offshore trusts, an issue on which there was previously no direct authority. The appeal was dismissed, with judgement released on 31 July 2026.